There's news this Sunday afternoon of a congressional deal to bailout Wall Street fat cats with $700 billion of taxpayer cash (you can read the draft legislation here). Though the deal negotiated between congressional leaders and the White House is better than what Treasury Secretary Henry Paulson originally proposed early last week, it remains an insulting atrocity, having omitted even basic aid to homeowners, bankruptcy reforms and any modicum of future financial industry regulation. Now, the New York Times reports that the Democratic leadership may not have the votes to pass this bailout. So without further ado, here are the top 5 reasons (in no order) why every single member of Congress - Democrat and Republican - should vote this sucker down. Please feel free to copy and paste this post into an email to your congressperson. They are deciding right now - let them hear your voice.
1. BAILOUT'S INHERENT FISCAL INSANITY COULD MAKE PROBLEM WORSE
When an individual consumer uses a new credit card to pay off astounding debt from an old credit card, it's akin to check kiting, which is is illegal. Apparently, though, when the government does it, it's billed as Serious Public Policy. Because that's what this supposedly prudent bailout bill would do: Force taxpayers to borrow $700 billion from foreign banks to pay off the bad debt of Wall Street banks. During a crisis that is aimed at preventing interest rates from skyrocketing, nobody has been able to explain how adding almost a trillion dollars to the interest rate-exacerbating national debt would do anything other than undermine the plan's underlying objective. Worse, the U.S. Treasury Department itself admits that the $700 billion number is "not based on any particular data point" - that is, they created it out of thin air because "We just wanted to choose a really large number." Slapping that amount of money onto the national credit card when our government can't even justify the amount is beyond absurd - it is insane.
It didn't have to be this way, of course. As I noted in my newspaper column this week, Senator Bernie Sanders proposed a temporary tax on millionaires to finance part of this bailout. Similarly, Blue Dog Democrats proposed a future tax on financial firms if and when taxpayers lose cash on the deal. These proposals were discarded in favor of language asking the government to "submit a plan to Congress on how to recoup any losses," according to the Associated Press. Not only is that language toothless, but it opens up the possibility of a plan being submitted that says we should raise middle-class taxes or slash middle-class social programs to pay for Wall Street's misbehavior.
2. EXPERTS ON BOTH THE LEFT AND RIGHT SAY THIS BAILOUT COULD MAKE THINGS WORSE
Primum non nocere is the latin phrase for "first do no harm" - the priority principle for any EMT working on a sick patient. It should be the same priority for Congress at this moment - and a growing group of esteemed experts on both the Right and Left are insisting that this bailout bill could make things worse. Here's a review:
- The Washington Post reported on Friday, almost 200 academic economists "have signed a petition organized by a University of Chicago professor objecting to the plan on the grounds that it could create perverse incentives, that it is too vague and that its long-run effects are unclear."
- NYU's Nouriel Roubini, the visionary who had been predicting this meltdown, says "The Treasury plan (even in its current version agreed with Congress) is very poorly conceived and does not contain many of the key elements of a sound and efficient and fair rescue plan."
- Harvard's Ken Rogoff, a Former Federal Rerserve and IMF official, insists that the prospect of this bailout is, unto itself, taking a manageable problem and making it into a more intense crisis. He says that credit is frozen primarily because banks want to avoid dealing with other banks that might drive a hard bargain, and instead would rather wait for free money from the government. Without the prospect of that free money, Rogoff suggests that credit would probably begin moving again, if slowly.
- Dean Baker of the Center on Economic and Policy Research says that spending so much cash so quickly on such a poorly conceived plan could have the effect of making it impossible to fund economic stimulus that is the real way out of this mess. "Suppose the Paulson plan goes through," he writes. "It is virtually certain that the economy will weaken further and the number of foreclosures and people without jobs will continue to rise. This is the fallout from a collapsing housing bubble...When families respond to their loss of home equity by cutting back their consumption it will deepen the recession. In this context it might prove very important to have the resources needed to provide a substantial stimulus. [and] there is no doubt that this bailout will make further stimulus much more difficult to sell politically."
Meanwhile, it's not even close to clear that this is a problem that requires such an enormous response. As mentioned above, the Treasury Department admits it has absolutely no factual basis for requesting $700 billion - an amount equivalent to about 5 percent of our entire economy. Additionally, the Washington Post reports that "Banks throughout the United States carried on with the business of making loans yesterday even as federal officials warned again that their industry is on the verge of collapse, suggesting that the overheated language on Capitol Hill may not reflect the reality on many Main Streets." Indeed, "many smaller banks said they were actually benefiting from the problems on Wall Street" and "even some of the nation's largest banks, which have pushed hard for a federal bailout, deny that the current situation is forcing them to reduce lending."
The questions, then, are simple: In the face of this bipartisan opposition from objective experts, why should a lawmaker instead believe the same Bush officials who helped create this crisis with their deregulation, the same Bush officials who just months ago said everything was AOK? Shouldn't there be almost complete unanimity among both objective and partisan observers before spending 5 percent of our entire economy after just one harried week of White House demands? Fool me once shame on you, fool me twice, shame on me. It's time, as The Who said, that we "don't get fooled again."
3. THERE ARE CLEARLY BETTER AND SAFER ALTERNATIVES
The mantra throughout the week has been that America has "no choice" but to pass Treasury Secretary Henry Paulson's $700 billion giveaway - that, in effect, there are no alternatives. But that's an out-and-out lie - one with a motive: Making it seem as if the only thing we can do is hand the keys to the federal treasury over to both parties' corporate campaign contributors.
The truth is, there are a number of alternatives. Here are just a few:
- In the Washington Post last week, Galbraith outlined a multi-pronged plan shoring up and expanding the FDIC, creating a Home Owners Loan Corporation, resurrecting Nixon's federal revenue sharing, and taxing stock transactions (a tax that would fall mostly on speculators) to finance the whole deal.
- The Service Employees International Union has drafted a plan based around a massive investment in public services and national health care, and regulatory reforms preventing foreclosures and forcing banks to renegotiate the predatory terms of their bad mortgages.
- For those in the mindless, zombie-ish "someone has to do something, so we have to do what the White House says!" camp, consider the possibility that you are under the spell of the same kind of White House fear that led us to invade Iraq because of Saddam's supposed WMD. Consider, perhaps, that there may not even be a compelling basis for doing anything just yet (or at least not anything nearly so huge), and that the whole reason there is this urgent push right now has nothing to do with the financial situation, and everything to do with creating the political dynamic to pass a wasteful giveaway - one that couldn't be passed otherwise without a sense of emergency. And ask yourself why you would listen to this White House instead of listening to those experts who have been predicting this crisis and are now advising against this bailout - experts like CEPR's Baker. In two separate posts (here and here), he says that letting the problem play out could be the best path, because Treasury and the Fed may already have the tools they need. Following this path, the worst thing that happens is "The Fed and Treasury will have to step in and take over the banks [which] is exactly what many economists argue should happen anyhow," Baker writes. "So the outcome of the worst case scenario is a really frightening day in which the whole world financial system is shaken to its core, followed by a government takeover of the banks. Eventually the government straightens out the books and sells them off again. But the real threat here is not to the economy, it is to the banks."
- Then there is the idea of simply taking the $700 billion and simply give it to struggling homeowners to help them pay off part of their mortgages. This hasn't even been discussed but the thought experiment it involves is important to understanding why there is, indeed, an alternative to the Paulson plan. If the root of this problem is people not being able to pay off their mortgages, and those defaults then devaluing banks' mortgage-backed assets, then simply helping people pay their mortgages would preserve the value of the mortgage-backed assets and recharge the market with liquidity. That would be a bottom-up solution helping the mass public, rather than a top-down move helping only financial industry executives.
On this latter proposal, some may argue that giving any relief to homeowners is "unfair" in that those homeowners created their problems, so why should taxpayers have to help them? But then, is helping homeowners any less fair than simply giving all the money away to Wall Street, no strings attached? I'd say no - and helping homeowners also serves a second purpose: namely, keeping people in their homes, which not only helps them, but helps an entire neighborhood (as any homeowner knows, nearby properties can be devalued when foreclosures hit).
4. ANY INCUMBENT VOTING FOR THIS PUTS THEMSELVES AT RISK OF BEING THROWN OUT OF OFFICE
As a preface, let me state that I think we live in a country where politicians too often listen to their donors and to the Establishment rather than their constituents, not the other way around. America is a country where our leaders dishonestly invoke the concepts of "Statesmanship" and "Seriousness" and their supposed hatred of "pandering" to justify ignoring what the public wants (as if giving the public what it wants is somehow not the objective of a democratic republic). So, in short, I don't think there's anything wrong with this bill being "politicized" by coming down the pike right before an election - in fact, I think it's a good thing because the election - and the fear of being thrown out of office forces our politicians to at least consider what the public wants. I mean, really - would we rather have this decision made after the election, when the public can be completely ignored?
Polls overwhelmingly show a public that sees voting for this bill as an act of economic treason whereby the bipartisan Washington elite robs taxpayer cash to give their campaign contributors a trillion-dollar gift. As just two of many examples, Bloomberg News' poll shows "decisive" opposition to the bailout proposal, and Rasmussen reports that their surveys show "the more voters learn about the proposed $700 billion federal bailout plan for the U.S. economy, the more they don't like it." Put another way, this bailout proposal has unified both the Right and Left sides of the populist uprising that I described in my new book and that is now even more angry than ever.
Any sitting officeholder that votes for this - whether a Democrat or a Republican - should expect to get crushed under a wave of populist-themed attacks from their opponents. We've already seen it start. In Oregon, Democratic challenger Jeff Merkley (D) is airing scathing television ads hammering Republican incumbent Gordon Smith for potentially supporting the deal. Similarly, this morning on Meet the Press, we saw Republican Senate challenger Bob Schaffer (CO) dishonestly papering over his own votes for deregulation and ripping into his opponent Rep. Mark Udall (D) for potentially supporting the deal. Incumbents, get ready for that kind of election-changing heat in your face if you vote "yes."
This, by the way, could play out in the presidential contest. Barack Obama has been taking the advice of the Wall Street insiders in his campaign in endorsing this bailout. McCain has endorsed the vague outline, but he may ultimately back off once he sees the details, allowing him to then run the last month of the campaign as the economic populist in the race. I'm not saying it would work, considering McCain's 26-year record of supporting the deregulatory agenda that created this crisis. But such a move could end up help him flank Obama on the defining economic issues of the race.
5. CORRUPTION AND SLEAZE ARE SWIRLING AROUND THESE BAILOUTS - AND AMERICA KNOWS IT
The amount of brazen corruption and conflicts of interest swirling around this deal is odious, even by Washington's standards - and polls suggest the public inherently understands that. Consider these choice nuggets:
- Warren Buffett is simultaneously advising Obama to support the deal, while he himself is investing in the company that stands to make the most off the deal.
- McCain's campaign is run by lobbyists from the companies that stand to make a killing off a no-strings government bailout.
- The New York Times reports that the person advising Paulson and Bernanke on the AIG bailout was the CEO of Goldman Sachs - a company with a $20 billion stake in AIG.
- The Obama campaign's top spokesman pushing this deal is none other than Roger Altman, who Bloomberg News reports is simultaneously "advising a group of investors who are trying to prevent their shares from being diluted in the U.S. takeover of American International Group Inc." - that is, who have a direct financial interest in the current iteration of the bailout.
Add to this the fact that the negotiations over this bill have been largely conducted in secret, and you have one of the most sleazy heists in American history.
If this bill passes, it will be a profound referendum on the dominance of money over democracy in America. That - and that alone - would be the only thing an objective observer could take away from the whole thing.
Money will have compelled politicians to not only vote for substantively dangerous policy, but vote for that policy even at their own clear electoral peril. Such a vote will confirm that the only people these politicians believe they are responsible for representing are are the fat-cat recipients of the $700 billion - the same fat cats who underwrite their political campaigns, the same fat-cats who engineered this crisis, and want to keep profiteering off it. Any lawmaker who takes that position is selling out the country, as is any issue-based political non-profit group - liberal or conservative - that uses its resources to defend a "yes" vote rather than demand a "no" vote. This is a bill that forces taxpayers to absorb all of the pain, and Wall Street executives to reap all of the gain. It doesn't even force the corporate executives (much less the government leaders) culpable in this free fall to step down - it lets them stay fat and happy in their corner office suites in Manhattan.
Even if they believe that something must be done right now, lawmakers should still vote no on this specific bill, and force one of the very prudent alternatives to the forefront. They shouldn't just vote no on Paulson's proposal - they should vote hell no. Our economy's future depends on it.