U.S. Rep. Rush Holt, who represents my congressional district in New Jersey, appears to get this. He called the Paulson plan “wrong,” and added that, to fix the problem, we have to go to the root. The root, he says, is
that financial institutions have been trading securities whose value they don’t know and can’t know because bad mortgages are mixed in with good mortgages in indeterminate amounts.
He added that the taxpayers would be buying paper without knowing its value and that “neither Secretary Paulson nor the market will be able to determine the value.”
So go to the root of the problem. Repair the bad mortgages. The Administration approach is to help Wall Street and hope eventually that helps Main Street. That is backwards. Helping Main Street will help Wall Street, and it will restore confidence, liquidity, and solvency.
He said there is a need for something like the federal Home Owners Loan Corporation, which was created in 1933, lasted 20 years, and
shored up a collapsing market by purchasing delinquent mortgages at a discount and working with homeowners to restructure the mortgages into more manageable terms. Congress and President Roosevelt authorized HOLC for $4.75 billion – or $76 billion in today’s dollars. With this investment, in its first two years, HOLC helped more than 1 million homeowners. In fact, when the HOLC finally ended, it showed a net $14 million surplus for taxpayers.
Let’s take a breath and show the world that the government of the United States will not let the financial house collapse.
Basically, David Sirota is right when he says that “Hell, no” would have been the best response to the Paulson plan and that a better alternative should have been placed on the table, one that uses Americans’ tax dollars to aid workers and homeowners faced with lost jobs, lost houses and a loss of faith in their government.
The proposal on the table fails on so many levels, it is difficult to grasp.
Consider:
- $700 billion to bail out the financial industry
- unlimted authority for the Treasury secretary, with no oversight and no court interference
- and nothing for the homeowners whose shrinking real estate values have accelerated the disaster.
Admittedly, there are reasons to step in here, but handing $700 billion to finance without asking for anything in return is just foolish.
Here is a flier from a group that organized a protest today — a flier that sums up why the Paulson plan makes little sense. (The flier is available on Naomi Klein’s site, though she is not an organizer of the demonstration):
This week the White House is going to try to push through the biggest robbery in world history with nary a stitch of debate to bail out the Wall Street bastards who created this economic apocalypse in the first place.
This is the financial equivalent of September 11. They think, just like with the Patriot Act, they can use the shock to force through the “therapy,” and we’ll just roll over!
Think about it: They said providing healthcare for 9 million children, perhaps costing $6 billion a year, was too expensive, but there’s evidently no sum of money large enough that will sate the Wall Street pigs. If this passes, forget about any money for environmental protection, to counter global warming, for education, for national healthcare, to rebuild our decaying infrastructure, for alternative energy.
This is a historic moment. We need to act now while we can influence the debate. Let’s demonstrate this Thursday at 4pm in Wall Street (see below).
We know the congressional Democrats will peep meekly before caving in like they have on everything else, from FISA to the Iraq War.
With Bear Stearns, Fannie and Freddie, AIG, the money markets and now this omnibus bailout, well in excess of $1 trillion will be distributed from the poor, workers and middle class to the scum floating on top.
This whole mess gives lie to the free market. The Feds are propping up stock prices, directing buyouts, subsidizing crooks and swindlers who already made a killing off the mortgage bubble.
Worst of all, even before any details have been hashed out, The New York Times admits that “Wall Street began looking for ways to profit from it,” and its chief financial correspondent writes that the Bush administration wants “Congress to give them a blank check to do whatever they want, whatever the cost, with no one able to watch them closely.”
It’s socialism for the rich and dog-eat-dog capitalism for the rest of us.
Dean Baker — via Naomi Klein — offers progressive principles that we should be following in figuring out how to deal with this. He admits that we are facing a crisis and that something must be done:
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.
The Paulson plan, however, is dangerous. He offers this as an alternative:
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.
A restructing of the finance system has to follow, he says, that follows these goals:
1) Combating asset bubbles must be one of the Fed’s key responsibilities.
2) The government should impose a modest financial transactions tax, comparable to the one in the United Kingdom. This can both restrain excessive trading and raise more than $100 billion a year in revenue.
3) Regulatory agencies should require that potentially tradable assets (e.g. credit default swaps) actually be traded on exchanges.
4) There should be strict limits on leverage for all regulated financial institutions.
5) Fannie and Freddie should remain fully public institutions, returning them to a status comparable to Fannie’s prior to its privatization in 1968.
6) The Fed should be restructured so that all the key decision makers (e.g. the open market committee) are appointed by democratically elected officials. Its responsibility is to manage the economy in the interest of the general public, not the financial sector.
I don’t see it happening, though the Democrats and some Republican senators have agreed to some of these principles. Speed, unfortunately, appears to have become more important than longterm success — or public opposition.
Hank Kalet 