No to a Blank Check Bailout

There is no doubt that a huge, trillion-dollar bailout is coming and it will be funded by American taxpayers. There is no choice, we are being told, if we are to avoid another Great Depression.

Most free market conservatives, faced with the bitingly bitter fruit of their 25-year campaign to deregulate investment banks, stock brokerage houses, hedge funds and other financial corporations -- and to neuter antitrust laws, SEC securities protection and basic consumer protection -- have abandoned their ideological posts and are running for the hills.

A few --like Treasury Secretary Henry Paulson himself, actually -- have sneaked across the lines and are now sleeping with the enemy. Or, as Kevin Phillips put it more elegantly this weekend:

[W]hat we're seeing with the actions of the Federal Reserve Board is the people who are the arsonists, the people who pumped it all up, who blew up the bubble are now racing to show up in firemen's hats and say, "We're gonna solve it. We're gonna take care of all this. Oh, and by the way, we're gonna keep pumping in the gasoline that we pumped in before that made a good flame."

In private talks over the weekend, Treasury Secretary Henry Paulson scared the hell out of everyone on Capitol Hill. One reason for the panic that hasn't gotten much ink, we suspect, is that he confided to them that it's not just U.S. financial corporations holding toxic mortgage-based exotic investments who are demanding to be made whole. Chinese, Japanese, European, and even South American financial institutions all bought the same "shitpile", as Duncan Black long has characterized it, from U.S. investment banks. Their governments are hot as hell about it and, you can be sure, they are threatening to rid themselves of all those American dollars they've accumulated as our own nation ran up its unsustainable debt under George W. Bush maladministration.

Behind Paulsen's "three page plan" to become the American Dictator of Finance is more than an attempt to save Wall Street. He's hoping to save the American greenback from falling below the Zimbabwean dollar.

We accept the reality that we are facing a financial crisis every bit as serious as the Great Depression. Even so, as editor Avi Zenilman reports in Politico today --

Many of the same economists and opinion-makers who’d provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson’s previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions.

One of those economists is Robert Reich, former Secretary of Labor. He authored, also today, a list of five conditions which should be attached to any bailout authority Congress may give the Treasury Secretary Paulson:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power - especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

To that, we would add at least two more conditions: meaningful oversight and standards for action. In a democracy no one person, however well intentioned, should be handed unlimited discretion and power to pay nearly a trillion dollars to whoever he likes for whatever reasons he fancies.