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Decisions by the [Treasury] 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.”
– Proposed Bush-Paulson financial bailout legislation
“Wall Street bet that the government would rescue them if they got into trouble. It appears that bet may be the one that pays off."
– Sen. Richard Shelby, (R – Alabama)
In 1929, as the Big Casino’s bad bets tanked, the show-biz trade paper Variety famously employed a theatrical metaphor proclaiming in its banner headline, “Wall Street lays an egg.” The yolk’s on us again, it would appear.
To pay for today’s egg dump, Treasury Secretary “Mr. Risk” Paulson, proposes that congress pass a three page bill worked out over the last 6 months by Hank and the administration’s other Wall Street alumni/shills. He warns that the bill must be kept “clean”— unblemished by conditions or reciprocity: A straightforward gift. He insists it not be “punitive.”
While poor women with children are subjected to stricture and sanction in order to receive a block of surplus cheese, or a token less-than-subsistance sum from government, the Ponzi schemers must be respectfully coddled and further enriched by an obsequious population. We are to lay $700 billion on their gilded altar and then back away bowing and scraping as we go.
Based on the testy reaction of the normally supine and servile Senate Banking Committee at Tuesday’s hearing with Paulson/Bernanke however, it appears that vast popular outrage may have temporarily stiffened vestigial spines in the apparently spineless political class.
Ohio Senator Sherrod Brown told the financial Bushmen, “I don’t think a single call to my office on this proposal has been positive. I don’t believe I‘ve gotten one yet of the literally thousands of emails and calls we’re getting. Part of this reflects outrage by taxpayers making $30,000, $40,000, $50,000, $75,000, $100,000 a year bailing out people whose country club memberships cost many times that…”
Recently economist Dean Baker, co-director of the Center for Economic and Policy Research suggested a few “conditions” that ought to be attached to any Christmas-in- September presents. Baker regularly comments on the structural failures of economic policy and reporting on his Beat the Press Internet site and in frequent op-eds published both here and abroad. Years ago he was warning of the inflating housing bubble, the blizzard of unregulated “innovative” financial paper that attended it, and the societal pain that would ensue when what went up came down.
Interested readers can find a link to Baker’s suggested conditions at his web site. I caught up with Mr. Baker by phone and digi-gizmo. He was kind enough to respond to a few questions:
RR) One of your constant objections to press coverage of economic issues is that, presented without some context, the numbers involved are essentially meaningless to most people. Paulson is demanding a $700 billion gift to the financial sector. How should we understand that number? Is it enough?
DB) “It’s 100 times what was needed to extend SCHIP for a year. It’s about $6,000 for every family in the country. It is real money. It is likely to be enough to keep the financial system from collapsing. It will not be sufficient to prevent a recession.”
RR) Some are suggesting that one aim of the bailout is to keep housing values from returning to their constant 100 year levels — essentially propping up real estate prices and keeping the bubble partially inflated. Would this be good public policy?
DB) “The country has no interest in an unaffordable housing policy. High house prices are a transfer from those who do not have homes to those who do. I can’t find a good argument for this sort of upward redistribution of wealth.”
RR) You’ve called for the public’s getting an equity stake in the bailed out firms (proportional to the size of the public’s "contribution"). Is this potentially like lashing the public to the Titanic’s deck?
DB) “Not really. Many of these banks are likely to go under. In that case, the government will take a loss, but the purpose of the intervention was not to make a profit, it was to keep the financial system operating. In cases where we lend money to a bank that does well, then the government will have a substantial stake.”
RR) You’ve recommended something like a Tobin tax on stock transfers to help fund the Wall Street rescue. The Conyers HR 676 single payer health care bill proposes a similar levy. What is a "Tobin tax?" Might it be an idea whose time has come?
DB) “It is a small tax on the transfer of a financial asset like a stock, bond, future or option. For example if we tax a stock trade at 0.25 percent (the rate in England) and have scaled taxes on other assets (perhaps 0.02 percent on an oil future), we can easily raise $100 billion a year. This could easily finance this bailout and leave money in future years for programs like health care.”
RR) You’d condition the bailout on the democratization of the Fed’s board, and making subsequent legislation filibuster-proof (i.e. based on simple majority rule). Please explain.
DB) “We often have legislation pass that is filibuster proof. A budget measure passes every year under this rule. Similarly, most trade agreements have also had this fast track status. As far as the Fed, the argument is that monetary policy should not be conducted by people who are not accountable to the public. As it stands now, 5 of the 12 people who determine monetary policy are appointed by banks. The banks should have no special voice in the conduct of monetary policy.”
RR) Is the press up to the task of usefully reporting events at this historic moment?
DB) “They have been way behind the curve. Most importantly they do not point out that this crisis was entirely foreseeable and is the result of a housing bubble that would inevitably collapse. It also neglects to point out that most of the leaders in the effort to "fix" the problem (e.g. Bush, Bernanke and Paulson) played major roles in creating the problem.”
Thanks to Dean Baker.
RICHARD RHAMES is a dirt-farmer in Biddeford, Maine (just north of the Kennebunkport town line).