The Bailout Is An Outrage

iVillage Member
Registered: 08-19-2007
The Bailout Is An Outrage
173
Sat, 09-20-2008 - 1:36pm

This trillion dollar plus bailout of the people who not only created the economic meltdown, but profited from it, is a travesty. All of our tax money will be used to ensure that the gamblers and speculators in our economy will feel no pain. With this economic legislation the underlying assumption is and has always been that what is good for the owners of mega-business is always good for the rest of us. Americans need to seriously consider this bailout. Do we really want to commit all of our treasure to a bailout of the speculators? The follow-up question to that is, if we commit a trillion dollars to rescue the speculators of our aristocratic class, will there be any money left to invest in public works programs or New Deal style job creation programs? Shifting all this public money away from the middle class - the class that actually fuels the economy the most- and into the hands of the wealthy is another major experiment in trickle down futility. Make no mistake, this bailout is a momentous decision that will have a huge impact on our lives. Consider it carefully. I'm not saying there is really anything we can do about it because our political class will ram this rotten bailout through, but it's useful to remember these moments so you can measure their consequences later and know exactly what ideology enabled them and who the proponents of that ideology are. 


Greenwald has some excellent commentary on these events:



David Herszenhorn,New York Times, today, "Congressional Leaders Stunned by Warnings":


It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.


Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.


"When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.


As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program "Good Morning America," the congressional leaders were told "that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally."


Mr. Schumer added, "History was sort of hanging over it, like this was a moment."


When Mr. Schumer described the meeting as "somber," Mr. Dodd cut in. "Somber doesn't begin to justify the words," he said. "We have never heard language like this."


"What you heard last evening," he added, "is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly."


Leave aside for the moment whether this gargantuan nationalization/bailout is "necessary" in some utilitarian sense. One doesn't have to be an economics expert in order for several facts to be crystal clear:



First, the fact that Democrats are on board with this scheme means absolutely nothing. When it comes to things the Bush administration wants, Congressional Democrats don't say "no" to anything. They say "yes" to everything. That's what they're for.


They say "yes" regardless of whether they understand what they're endorsing. They say "yes" regardless of whether they've been told even the most basic facts about what they're being told to endorse. They say "yes" anytime doing so is politically less risky than saying "no," which is essentially always and is certainly the case here. They say "yes" whenever the political establishment -- meaning establishment media outlets and the corporate class that funds them -- wants them to say "yes," which is the case here. And they say "yes" with particular speed and eagerness when told to do so by the Serious Trans-Partisan Republican Experts like Hank Paulson and Ben Bernake (or Mike McConnell and Robert Gates and, before them, Donald Rumsfeld and Colin Powell).


So nothing could be less reassuring or more meaningless than the fact that the Democratic leadership has announced that what they heard scared them so much that they are certain all of this is necessary -- whatever "all this" might be. It may be "necessary" or may not be, but the fact that Congressional Democrats are saying this is irrelevant, since they would not have done anything else -- they're incapable of doing anything else -- other than giving their stamp of approval when they're told to.


Second, whatever else is true, the events of the last week are the most momentous events of the Bush era in terms of defining what kind of country we are and how we function -- and before this week, the last eight years have been quite momentous, so that is saying a lot. Again, regardless of whether this nationalization/bailout scheme is "necessary" or makes utilitarian sense, it is a crime of the highest order -- not a "crime" in the legal sense but in a more meaningful sense.


What is more intrinsically corrupt than allowing people to engage in high-reward/no-risk capitalism -- where they reaped tens of millions of dollars and more every year while their reckless gambles were paying off only to then have the Government shift their losses to the citizenry at large once their schemes collapsed? We've retroactively created a win-only system where the wealthiest corporations and their shareholders are free to gamble for as long as they win and then force others who have no upside to pay for their losses. Watching Wall St. erupt with an orgy of celebration on Friday after it became clear the Government (i.e., you) would pay for their disaster was literally nauseating, as the very people who wreaked this havoc are now being rewarded.


More amazingly, they're free to walk away without having to disgorge their gains; at worst, they're just "forced" to walk away without any further stake in the gamble. How can these bailouts not at least be categorically conditioned on the disgorgement of ill-gotten gains from those who are responsible? The mere fact that shareholders might lose their stake doesn't resolve that concern; why should those who so fantastically profited from these schemes they couldn't support walk away with their gains? This is "redistribution of wealth" and "government takeover of industry" on the grandest scale imaginable -- the buzzphrases that have been thrown around for decades to represent all that is evil and bad in the world. That's all this is; it's not an "investment" by the Government in any real sense but just a magical transfer of losses away from those who are responsible for these losses to those who aren't.


And all of this was both foreseeable as well as foreseen -- see the 2002 grave warnings from Warren Buffett on pages 14-15 of his shareholders letter (.pdf), among many other things -- and it's also happened before, when the Federal Government bailed out the S&L industry that (with John McCain's help) was able to gamble recklessly and then force the country to protect them from their losses. The people who did this have no fear of anything -- they lack the kind of healthy fear that impede reckless behavior -- because they know how our Government works and that they control it and thus believe that their capacity to suffer is limited in the extreme. And they're right about that.


What's most vital to underscore is that the beneficiaries of these extraordinary Government schemes aren't just the coincidental recipients of largesse out of some incredible good luck. The people on whose behalf these schemes are being implemented -- the true beneficiaries -- are the very same people who have been running and owning our Government -- both parties -- for decades, which is why they have been able to do what they've been doing without interference. They were able to gamble without limit because they control the Government, and now they're having others bear the brunt of their collapse for the same reason -- because the Government is largely run for their benefit.


If there is any "pitchfork moment" -- an episode that understandably would send people into the streets in mass outrage -- it would be this, or at least should be. Nobody really even seems to know how much of these losses "the Government" -- meaning working people who had no part in the profits from these transactions -- is undertaking virtually overnight but it's at least a trillion dollars, an amount so vast it's hard to comprehend, let alone analyze in terms of consequences. The transactions are way too complex even for the most sophisticated financial analysts to understand, let alone value. Whatever else is true, generations of Americans are almost certainly going to be severely burdened in untold ways by the events of the last week -- ones that have been carried out largely without any debate and mostly in secret.


Third, what's probably most amazing of all is the contrast between how gargantuan all of this is and the complete absence of debate or disagreement over what's taking place. It's not just that, as usual, Democrats and Republicans are embracing the same core premises ("this is regrettable but necessary"). It's that there's almost no real discussion of what happened, who is responsible, and what the consequences are. It's basically as though the elite class is getting together and discussing this all in whispers, coordinating their views, and releasing just enough information to keep the stupid masses content and calm.


Can anyone point to any discussion of what the implications are for having the Federal Government seize control of the largest and most powerful insurance company in the country, as well as virtually the entire mortgage industry and other key swaths of financial services? Haven't we heard all these years that national health care was an extremely risky and dangerous undertaking because of what happens when the Federal Government gets too involved in an industry? What happened in the last month dwarfs all of that by magnitudes.


The Treasury Secretary is dictating to these companies how they should be run and who should run them. The Federal Government now controls what were -- up until last month -- vast private assets. These are extreme -- truly radical -- changes to how our society functions. Does anyone have any disagreement with any of it or is anyone alarmed by what the consequences are -- not the economic consequences but the consequences of so radically changing how things function so fundamentally and so quickly?


Other countries are debating it. The headline in the largest Brazilian newspaper this week was: "Capitalist Socialism??" and articles all week have questioned -- with alarm -- whether what the U.S. Government did has just radically and permanently altered the world economic system and ushered in some perverse form of "socialism" where industries are nationalized and massive debt imposed on workers in order to protect the wealthiest. If Latin America is shocked at the degree of nationalization and government-mandate transfer of wealth, that is a pretty compelling reflection of how extreme -- unprecedented -- it all is.


But there's virtually no discussion of that in America's dominant media outlets. All one hears is that everything that is happening is necessary to save us all from economic doom. And what's most amazing about that is that the Natural, Unchallenged Consensus That Nobody Questions can shift drastically in a matter of days and still nobody questions anything. This is what Atrios observed as I was writing this post:
It's fascinating to watch how easily consensus is manufactured. A few days ago elite opinion seemed to be cheering Paulson's "no bailout" line, and now they're cheering a trillion bucks thrown down the crapper. All the Very Serious People will spend their days coming up with their pony plans, oblivious to the fact that the pony plan is not an option. The Bush administration's plan is the option.

The way it works is that Bush officials decree how things will be, and then everyone -- from Congressional Democrats to the Serious Pundits -- jump uncritically and obediently on board, even if they were on board with the complete opposite approach just days earlier, and then all real dissent vanishes. That's how the country in general works. As Atrios says: "We've seen this game played before."



I don't pretend to know anywhere near enough -- in terms of either raw information or expertise -- in order to opine on the Latest Plan. But what I do know is that an injustice so grave and extreme that it defies words is taking place; that the greatest beneficiaries are those who are most culpable; and that the same hopelessly broken and deeply rotted institutions and elite class that gave rise to all of this are the very ones that are -- yet again -- being blindly entrusted to solve this. http://www.salon.com/opinion/greenwald/2008/09/20/bailout/index.html


    




Edited 9/20/2008 2:55 pm ET by glitter_girl_5000

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iVillage Member
Registered: 08-13-2008
Sat, 09-20-2008 - 8:15pm

The Federal Reserve has a huge amount of economic power; in fact, I sorta scoff at presidential candidates (in normal economic years) claiming they will increase employment. Tell that to the Fed, who would watch a low unemployment rate like a hawk, knowing that creates upward pressure on salaries, and thus... inflation.


Go look at our last serious crisis from the late 1980s and early 1990s, see how we dealt with that. A lot of people were unhappy, but it also stopped a collapse.


The problem is really what we do after they act, how we insist the markets be regulated. Not much we can do to change how they go about this immediate intervention.


I'd surely like to see some ideas you might have though... because I'm rather fond of having solutions offered along with criticism.


Full length fiction: worlds undone

"You have no power over my body..." ~ Anne Hutchinson

iVillage Member
Registered: 08-13-2008
Sat, 09-20-2008 - 8:17pm
Exactly. Which is why insisting that these issues be addressed after this crisis is so very important. Lets get through this and then set the market up properly.

Full length fiction: worlds undone

"You have no power over my body..." ~ Anne Hutchinson

iVillage Member
Registered: 08-13-2008
Sat, 09-20-2008 - 8:19pm

Glitter, I understand your concerns, and ideologically agree... but this isn't about that stuff, it's about people still having jobs in a month.


Insist on change once we've plugged the leak, but right now the leak has to be stopped.


I'm open to suggestions. I'm more than willing to hear ideas... but saying 'that sucks!' without having an alternative doesn't do anyone any good.


Full length fiction: worlds undone

"You have no power over my body..." ~ Anne Hutchinson

iVillage Member
Registered: 09-15-2008
Sat, 09-20-2008 - 8:56pm
The information is readily available and has been posted here a number of times.
iVillage Member
Registered: 04-02-2008
Sat, 09-20-2008 - 9:00pm
I would call, email all your congress people so say heck no.
iVillage Member
Registered: 08-19-2007
Sat, 09-20-2008 - 9:02pm

You're still simply saying, "Allow Bush to do what he wants. It's for the best." I don't buy it. As far as proposals for handling this go, I've already posted some things, but here's another one:



Progressive Conditions for a Bailout

By Dean Baker - September 20, 2008, 12:43PM


The events of the last week showed the urgency of dealing with the financial crisis. There is a real risk that the banking system will freeze up, preventing ordinary business transactions, like meeting payrolls. This would quickly lead to an economic disaster with mass layoffs and plunging output.


The Fed and Treasury are right to take steps to avert this disaster. While there is an urgency to put a bailout program in place, there are several important issues that Congress should address in the context of bailout.


While there is not time to prepare all the details of the financial restructuring that will follow after the bailout, there can be an agreement on the outlines that this restructuring should take. This list of suggestions is presented in that context:


Principles to Guide the Bailout


1) Financial institutions should be forced to endure the bulk of the losses with taxpayer funds only used where absolutely necessary to sustain the orderly operation of the financial system.


2) The bailout must be designed to minimize the opportunity for gaming.


3) The bailout should be designed to minimize moral hazard.


4) In the case of delinquent mortgages that come into the government's possession, there should be an effort to work out an arrangement that allows the homeowner to remain in her house as owner. If this proves impossible, then former homeowners should be allowed to remain in their homes as renters paying the market rent. This should be done even if it leads to losses to the government.


5) There should be serious efforts to severely restrict executive compensation at any companies that directly benefit from the bailout.

iVillage Member
Registered: 04-02-2008
Sat, 09-20-2008 - 9:05pm
And we aren't done yet we have two more banks that will fail next week.
iVillage Member
Registered: 08-19-2007
Sat, 09-20-2008 - 9:10pm

the administration had to act at the last moment to prevent a far worse situation.


I agree that we need to get some kind of legislation in place to handle this, but I disagree that we're out of time and that we simply have to throw up our hands, roll over, and give the Bush ideologues $700 billion along with more credit, to dispose of as they please. We can put safeguards in place. We can demand that the Fed give us details about their solution for dealing with the problem and we can approve that plan. See post 47 for some things, suggested by Dean Baker, that

iVillage Member
Registered: 09-15-2008
Sat, 09-20-2008 - 9:19pm

I don't feel the populace in general or the employees of the company should be punished for the wrong doings of those leading the company.

iVillage Member
Registered: 04-03-2003
Sat, 09-20-2008 - 9:29pm

AIG was out of time.

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