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 Getting the Bailout RightPosted on Sep 22, 2008By E.J. Dionne Liberal Democrats are in agony over bailing out Wall Street. Conservative Republicans are in agony over massive government intervention in what they like to call the free market. Yet neither side wants to be blamed if the financial system implodes. It gets more complicated: An administration whose critics believe it abused the power it grabbed during a different kind of national emergency after the 9/11 attacks is asking for unprecedented authority over the financial system. Yet the man leading the charge this time, Treasury Secretary Henry Paulson, is one of the few administration officials trusted by Democrats. All this is happening six weeks before an election whose outcome could set the country on a very different course. Both presidential candidates are wary of getting on the wrong side of either the public’s justified populist fury or its desire for prudence in the face of potential catastrophe. The broad outcome is already in view: Unless something very strange happens, Congress will pass a massive bailout of the financial system by the end of this week simply because every other option is worse. Rep. Barney Frank, a Democrat who chairs the House Financial Services Committee, captured the prevailing mood in an interview during a break in the negotiations on Sunday night: “What’s the alternative?” he asked. Advertisement  One core doubt about this bailout is whether taxpayers will be holding a bag of dreadful investments that reckless financial mavens get to unload without having to part with their houses in the Hamptons. This isn’t just rhetorical populism: There is a moral problem for capitalism itself if taxpayers take on a burden created by the foolishness of the privileged and get little compensation in return. A related problem is how much new spending should be piled onto a federal budget that is already in the red. Yes, a bailout is necessary, but several steps could limit the risks. Sen. Jack Reed, D-R.I., has proposed granting the federal government warrants to acquire stock in financial firms that profit from the bailout. This way, taxpayers would share in the gain if the industry recovered—which, of course, is the whole point of this exercise. Socialism, you say? We’re already into that. The administration’s plan amounts to socialism for the rich only. And as Reed explained in an interview, his proposal is actually more in keeping with capitalism than a pure bailout. “If taxpayers take risks, they should be able to reap some of the rewards,” he said. Frank is trying to get this provision into the final bill. Moreover, as Reed notes, giving the government an option to have a share in companies if they succeed will protect taxpayers if the feds pay too much for a company’s bad debt. If a company prospers because it receives more than what turns out to be a reasonable market price for its debt—and the debt we’re talking about will be very hard to price—taxpayers get at least some of the money back when the company’s stock goes up. The bottom line should be: no potential upside for the taxpayers, no bailout. Another question: Why bail out Wall Street and not help those who are losing their homes in the subprime mortgage fiasco? Frank believes that if the government comes to hold bad mortgages under the bailout plan, it will be able to halt foreclosures. Sen. Charles Schumer, D-N.Y., wants to give bankruptcy courts the power to change mortgage provisions to keep people in their homes. Almost everyone in both parties agrees that the final bailout bill should place real checks on the power of the treasury secretary. Such accountability provisions were a key element in a proposal offered Monday by Senate Banking Committee Chairman Chris Dodd, D-Conn. Even if Paulson proves to be a sainted and savvy steward, what about the next secretary? And if Congress can appropriate $700 billion for Wall Street, where is the help for everyone else hurting in this economy? Isn’t it strange that an administration that could not come up with a comparatively modest sum to increase the number of children with health insurance could suddenly find all this cash for the financial industry? Sadly, this bailout is inevitable. But it should be done right. Congress shouldn’t be bullied into passing a flawed plan that will leave the next president in an even deeper hole. Elsewhere: . CommentsAre you a Truthdig member yet? Login now, or register with Truthdig. Add Your Comment
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By Pat, February 28 at 1:46 am #
(Unregistered commenter)
Someone should take a poll on whether the public thinks that corporations have had a tendency to jump on the bail out bandwagon to restructure themselves under the guise of bad markets the way they do when letting older employees go during large layoffs.
Anyone who doesn’t think that corporations are well positioned to take advantage of bad news just as they are likely to during good news is naive.
They’ve been doing this for years. The whimpering bank bail outs simply gave them a wide open doorway to take advantage of the same mechanisms, allowing them to create a worse problem than America already has by creating market fears.
“Sold Cold” is an apt tag line for what America has suffered of late. Why is the big question, and could lead to the real truth behind the bail out fiasco, to be followed closely by the question of whether corporations are still respectable in America today.
Does anyone or any thing still have credibility here after this year?
Report thisBy Da Bronx, September 25, 2008 at 8:31 am #
(Unregistered commenter)
This situation, that congress and Wal-Street (no misspelling) concocted, is a travesty.
If we are to bail out the financial indrustry, we need some payback, might I suggest a few items
Interest on all loans capped at 5 points over prime.
Late, over-limit, ATM, and prepayment fees be outlawed.
eliminate tax exemptions related to bad debt.
remove the “service charge” for small business accepting credit cards.
Allow student loan recipiants to declare “bankrupcy” when the cause of insolvency is unemployment, illness in the family, or the over-riding need to care for aging parents.
Make lobbying by any indrustry recieving federal funds as a result of “bailout” or “rescue"illegal.
Make campaign contributions by any indrustry or individual under bankrupcy protection illegal.
given time I can think of more….
I’ve seen this before, it is hard to believe BUT we have them over a barrel.. write your congress person and submit your dream-list!
Report thisBy libertarian, September 24, 2008 at 11:48 pm #
(Unregistered commenter)
Author Dionne has apparently bought into the propaganda that there is no alternative to bailing out dishonestly managed firms. There are plenty of alternatives. The obvious is to let these firms, one by one, go into bankruptcy. There are other wealthy financial outfits which will find a way to fill the niche. Only retail customers will receive a bailout, this I’m guessing to be a quarter of the sought 700billion + risk. If the Feds feel the need to spend the unspent half-trillion of the bailout, establish national health-insurance. It pains me, as a libertarian, to say all this but if these talking zits are going to blow the debt ceiling wide open, it might as well be for good causes.
Report thisBy rage, September 24, 2008 at 5:23 pm #
(Unregistered commenter)
“One core doubt about this bailout is whether taxpayers will be holding a bag of dreadful investments that reckless financial mavens get to unload without having to part with their houses in the Hamptons. This isn’t just rhetorical populism: There is a moral problem for capitalism itself if taxpayers take on a burden created by the foolishness of the privileged and get little compensation in return.”
Oh, no doubt, we, the little people who pay the bulk of the taxes, are taking this melt-down right in the tail, sans lube and the kiss from those deemed by some to be too big to allow to fail. Idiots who still have the audacity of nerve to still be spouting the lunacy of Ayn Rand! This is the product of market corruption and unbridled capitolism. The thing is there were too many examples throughout human history to let us know this lunacy HAS NEVER WORKED!!!
So, as a little person tired of my taxes supporting the welfare that these reactionary corporatists all claim is waste, fraud, and abuse when I need to eat, but okay for wealthy speculators to burn to light their Cuban cigars in corporate banking meetings,I say screw them. SCREW THEM ALL!!! LET’S NOT BAIL THE BASTARDS OUT! LET THEM DIE!!! LET THEM DIE THE SAME DEATH THE GIPPER CURSED THE LITTLE PEOPLE TO DIE WHEN HE UNFETTERED ALL REGULATION ON THIS LAISEZ-FAIRE CAPITOLISM ON OUR ECONOMY!!!
Those greedy idiots knew they were a behemoth when they kept running until they tripped. Now they’re falling and can’t pull up or break the fall! Just clear out of their paths and let them tear the ground up from whatever heights they’re now crashing to the earth. We’ll do all the usual post crash assessments and clean ups we do when any fast moving high flying entity crashes to the earth. We’ve got just enough toe tags and body bags to go around. If not, toe tag and body bag manufacturing is a perfect way to start building the economy.
Nothing is too big to let fall! NOTHING! A proper burial is all we owe these malignantly greedy bastards!
Report thisBy grumpynykr, September 24, 2008 at 2:55 pm #
(Unregistered commenter)
Having only a bad public school education, I cannot understand how politicians who accepted lobbying $ from Wall Street could even think about a $700 billion bailout. Follow the Milton Friedman free market nonsense: LET THEM FAIL!!! First, I would demand that all members of the House/Senate Financial committees READ THE PROPOSAL. Eliminate all bonuses to CEO/managers. Exclude foreign banks. Install a ARM debt forgiveness program for homeowners,not SPECULATORS. Install a similar program for people in credit card debt (from medical illness, lost employment, etc) Bring back the stock transfer tax. Fire Bernanke/Paulson along withany Wall Street honchos involved in this scheme; in fact prosecute them under RICO statutes Last, Congress should stay in Washington and ignore the scare tactics theses Repugnat-cans used to push the Patriot Act. Wait until after the elections to make adecision.
Report thisBy Anarcissie, September 24, 2008 at 11:16 am #
I gather the folk are not at all convinced of this. There has not been time to turn it into a game show or a soap opera, and they are apprehending the news raw, to wit, it is a swindle and they are the marks. Of course this has been true for a long time, but previously the swindlers were pretty good at covering their tracks.
We might be at a tipping-point of some kind.
Report thisBy Stephen Smoliar, September 24, 2008 at 10:46 am #
When you think of it, this could not have happened at a worse time for the Bush gangsters. The media are NOT selling their story very well at all, and every member of the House has to worry about the election in November. The result seems to be a growing movement of Republicans who can only get reelected by playing to Main Street rather than Wall Street. In a situation like that, what could CONSIGLIERE Cheney (who seems to have spent a good chunk of his time in the House yesterday) do to make them an offer they could not refuse?
Report thisBy troublesum, September 23, 2008 at 10:08 pm #
The Bush gangsters are counting on the usual media claque to help sell this to the public. Everyone of them begins with the same line: “We must do this because the alternative is so much worse.”
Report thisBy lichen, September 23, 2008 at 9:03 pm #
This isn’t a bailout, it’s a stickup! The banks should be allowed to fail, and housing should be recognized as a human right per the UN Declaration; no one should lose their homes or be homeless, because there is already more than enough empty housing in this country to house everyone.
Report thisBy mackTN, September 23, 2008 at 7:56 pm #
(Unregistered commenter)
This is the mother of all chutzpahs! I wouldn’t give anybody in the Bush administration toilet paper to wpe their butts. Giving Paulson 700 billion to prevent financial catastrophe sounds an awful lot like Bush demanding 70 billion for Iraq or else all hell will break loose.
Funny how they ask for help when they laugh in your face when you try to negotiate some help for yourself. The credit card industry laughs at you when you threaten to report them to the FTC about their devious practices—they’ll tell you outright that the law’s on their side.
Where’s our bailout? We allow corporations to escape into bankruptcy but ordinary people are prevented from using that escape valve.
Last but not least…that corporate lobbyists are writing this bailout galls me. Who are they protecting? You?
The timing of this is curious. I can’t believe this cancer sprung forth into stage 5 form overnight. Perhaps Bush reasoned that he might not have gotten his Iraq money if he pulled the alarm about the economy.
It’s too late to impeach Bush & Cheney but it’s not too late to arrest them.
Report thisBy Stephen Smoliar, September 23, 2008 at 7:40 pm #
cyrena, I share your appreciation of the casino metaphor; and I think you are on to something when you “take it to the next level” of addiction. However, having just watched (courtesy of Showtime) MAXED OUT (for the second time), I would suggest that it may not be gambling to which we are addicted. Ours is a culture that is addicted to DEBT. More specifically, the culture depends so heavily on consumerism that it is only through debt that we can be the consumers we have been acculturated to become. Is in any wonder, then, that our Federal Government should be as addicted to debt as its citizens are? Further thoughts at:
http://therehearsalstudio.blogspot.com/2008/09/maxed-out.html
Report thisBy Wily Trax, September 23, 2008 at 7:30 pm #
(Unregistered commenter)
The smoking gun on this one will come in the shape of a champagne glass.
For Wall Street.
Maybe we should stock up on plastic and duct tape.
And bury our money in the back yard.
http://www.wilytrax.com
Report thisBy STARCHY, September 23, 2008 at 6:09 pm #
(Unregistered commenter)
^^^^ well when you have a nap love to see the rest of your jigsaw puzzle…
Forgive me, I am not an economist, but I don’t understand how the failure of Wall Street Investment firms is going to affect my grocery store, gas station, friends and neighbors.. We don’t own mortgage backed securities. We didn’t issue credit swap paper. We don’t have loans out to foreign governments..
LET THEM FAIL!!! Who says there is no “other alternative”? The very people who got us in this mess to begin with.
What they are REALLY saying is that “we” can’t let CORPORATIONS fail, and what are they other than paper agreements between people? So in essence “they” want to put this agreements ahead of citizens- and thats bullshite.
Report thisBy cyrena, September 23, 2008 at 5:36 pm #
RE: wish i knew, September 23 at 7:24 am
Wish I knew,
This is a terrific post! The analogy is absolutely perfect. Millions of us have already been there, or are there now. (the alternative being the cardboard box and that’s even losing it’s element of ‘choice’).
I should add that they didn’t just start the game. They’ve been into it for a long time, as gamblers are known to have this addiction. So, there’ve been all of the other bailouts. I’ve lost track of which round they’re in now, but each time, I get closer to the cardboard box, and observe far too many others joining those ranks.
Anyway, thanks for the great post.
Report thisBy PatrickHenry, September 23, 2008 at 5:15 pm #
I wonder where Dov Zakheim hid that 2.3 trillion, we could sure use it now.
Report thisBy Purple Girl, September 23, 2008 at 5:08 pm #
Instead of charging each Household about $10,000 each ( Mac’s guesstimation- probably more like $20,000)in Taxes to cover these Embezzlers Asses. Cut Checks for tax payers in th eamount of the bail out.
Report thisWith a check of at least $10,000, We can pay our Mortages, car payments, credit card bills and Buy a little Something something which will support, if not enhance the Economy and Employement rate.
Freeze, and Seize the Top Brass’s Assets, Let their foreign creidtors figure out how to get the rest out of THEM. This country was built into a Global power by the citizens, not by the Corps. Any Bailout should first come to US!
I would Rather invest in AmericaNs Then any Brick and mortar ‘Casino’ or Orgnaized Crime syndicate!
By Bboy57, September 23, 2008 at 4:26 pm #
Here’s an accurate account of what EXAECTELY has transpired over the last 20 yrs. in the financial “industry”.
http://www.prisonplanet.com/financial-terrorism-ii-where-do-we-land.html
Report thisBy Bboy57, September 23, 2008 at 2:46 pm #
This “payoff” money being requested by the Bush Administration through The Treasury Secretary Paulson just flys in the face of every ordinary taxpayer with it’s rancor and hostiliy towards us, the electorate. We are helpless to act unless we uprise and they will declare marshall law under those circumstances. We’re literally f***** without the vasoline! And that’s the way it’s going to be.
All this talk about provisions being added to pacify us are total BS. Let the financials fail. Lets take the lumps now by the evil polocies of the present clowns and then lets start again. The End.
Report thisBy Stephen Smoliar, September 23, 2008 at 1:04 pm #
“Who benefits?” is definitely the question that should be on the table and will determine, one way or the other, whether or not the members of both houses of Congress truly represent us:
http://therehearsalstudio.blogspot.com/2008/09/watching-senate-banking-committee.html
Report thisBy Hammo, September 23, 2008 at 12:14 pm #
For a limited time only, you can take advantage of a special offer from Wall Street and the Bush administration. That’s right. For just seven easy payments of $100 billion each, you can be a part-owner of fraud and corruption. To find out more, see the article:
Wall Street’s special offer – but you must act now!
Sept. 23, 2008
AmericanChronicle.com
http://americanchronicle.com/articles/75216
Report thisBy RdV, September 23, 2008 at 12:04 pm #
and it really isn’t about winning, it is about swindling when it is all about creating your own reality and propping up the illusion of success by numbers games and marketing sound bites.
Report thisSooner or later the gig is up and like the poor that fight and kill in rich man’s wars, the folks back home are demanded to make tribute to the wealthy aristocracy in the name of saving democracy.
By wish i knew, September 23, 2008 at 11:24 am #
So basically the “free-marketeers” have been at the craps table way too long and they are out of cash.
The “House” (our lovely government) has decided that those free-marketeers are just too important to the casino - even though they have won millions of dollars from the casino in the past (money that they now have squirreled away in tax shelters and offshore bank accounts), they stay free at the casino hotel and eat comp’d meals constantly. But their presence at the casino is perceived as important, so the House hands the gamblers their money back and tells them they can start over.
Only that money the casino used to reimburse the gamblers has now merely bankrupted the payroll account of the casino, meaning that all of the employees will get a 50% pay cut, there are no more benefits, no more sick pay or paid vacations, and even if the gamblers get lucky this time that money will never get repaid. The employees are just f*ed, and it is their fault for “choosing” to work at that casino in the first place. But no other casinos are hiring, so it is either keep that job or go live in a cardboard box. Either way, if the employees become outraged about it, they are just “angry liberals” who are obviously just too lazy and looking for a handout.
Meanwhile, those gamblers just know that this time they can win big….
Report thisBy Liesure Suit Larry, September 23, 2008 at 9:25 am #
(Unregistered commenter)
The Jobs have gone to India, The Money has gone to China, our Grandchildren already (before the bailout) owe the Government 50 k at their birth, so please tell me why should the vanishing middle class pay for this mess?
It is the equivalent of Donald Trump asking his Butler for a interest free 100K loan to be paid off at the Donald’s convenience.
As to “helping the people” it is far too late for that. “The people” are fucked, and if Barney Frank (who was there during “deregulation”) and Richard Shelby (who once was a Democrat) had the slightest bit of decency they would resign with an appology to the folks they have destroyed.
Report thisBy RdV, September 23, 2008 at 9:16 am #
You poor little whining Republican libertarian cheerleaders trying to pin this on the Left after rallying around the deregulation bandwagon for decades make me sick.
Report thisI could kick your ass for aiding and abetting the policies that done drove us to the brink while carping on about tax and spend liberals and claiming to defend small business with corporate welfare. You bought it hook, line and sinker and demonized, I’m sure, anyone who challenged it as as some un-American commie. I’d like to kick your ass because not only do you know have to pay for your stupid gullibility, we all have to pay.
By RdV, September 23, 2008 at 9:09 am #
We keep on hearing how the bailout is necessary and there is no alternative but we never hear why.
Why does it benefit us to assume their losses so they can maintain their standard of living and continue looting while we sacrifise to subsidize them? They should be funding us because it doesn’t seem to matter if we are hurting economically to bail them out when they should be behind bars.
Report thisBy Dan M, September 23, 2008 at 8:44 am #
Pretty spot on article until the comment on the ones who benefit are the rich.
Report thisLest we forget all the small business owners, and their employees who will disappear should we not bail out the big capitalist corporation.
What also would have been nice in this article, would have been the inclusion as to how we really wound up in this mess in the first place.
I must confess, I am tired, really tired.I have done my homework, put the little tiny pieces of this giant jigsaw together and believe that I have the facts of how and why we have come to this mess.It’s not pretty. If the “Truthdigs” has any integrity it should tell the story starting from 1994 to present, in its entirety, unedited. In this story you will find out that the politicians we all love and adore are the culprits, not the big fat cats on Wall street.
You will find that it has blame across party lines, but far more blame in the Democratic party. We will find that when the real alarms went off in Sept. of 2005, Mr. Greenspan was silenced.
I’m sorry for not giving “threads” to all the sites that give credibilty to my conclusion, but as I’ve said, I’m tired…..sick and tired.