Wall Street is licking its chops at the Bush team’s multi-hundred billion dollar giveaway plan
If
Wall Street gets away with this, it will represent an historic
swindle of the American public.
By
William Greider Read Spanish Version
From
The Nation
Financial-market
wise guys, who had been seized with fear, are suddenly drunk with
hope.
They
are rallying explosively because they think they have successfully
stampeded Washington into accepting the Wall
Street Journal
solution to the crisis: Dump it all on the taxpayers. That is the
meaning of the massive bailout Treasury Secretary Henry Paulson has
shopped around Congress. It would relieve the major banks and
investment firms of their mountainous rotten assets and make the
public swallow their losses — many hundreds of billions, maybe much
more. What’s not to like if you are a financial titan threatened with
extinction?
If
Wall Street gets away with this, it will represent an historic
swindle of the American public — all sugar for the villains, lasting
pain and damage for the victims. My advice to Washington politicians:
Stop, take a deep breath and examine what you are being told to do by
so-called "responsible opinion." If this deal succeeds, I
predict it will become a transforming event in American politics —
exposing the deep deformities in our democracy and launching a tidal
wave of righteous anger and popular rebellion. As I have been saying
for several months, this crisis has the potential to bring down one
or both political parties, take your choice.
Christopher
Whalen of Institutional Risk Analytics, a brave conservative critic,
put it plainly: "The joyous reception from Congressional
Democrats to Paulson’s latest massive bailout proposal smells an
awful lot like yet another corporatist lovefest between Washington’s
one-party government and the Sell Side investment banks."
A
kindred critic, Josh Rosner of Graham Fisher in New York, defined the
sponsors of this stampede to action: "Let us be clear, it is not
citizen groups, private investors, equity investors or institutional
investors broadly who are calling for this government purchase fund.
It is almost exclusively being lobbied for by precisely those
institutions that believed they were ‘smarter than the rest of us,’
institutions who need to get those assets off their balance sheet at
an inflated value lest they be at risk of large losses or worse."
Let
me be clear. The scandal is not that government is acting. The
scandal is that government is not acting forcefully enough — using
its ultimate emergency powers to take full control of the financial
system and impose order on banks, firms and markets. Stop the music,
so to speak, instead of allowing individual financiers and traders to
take opportunistic moves to save themselves at the expense of the
system. The step-by-step rescues that the Federal Reserve and
Treasury have executed to date have failed utterly to reverse the
flight of investors and banks worldwide from lending or buying in
doubtful times. There is no obvious reason to assume this bailout
proposal will change their minds, though it will certainly feel good
to the financial houses that get to dump their bad paper on the
government.
A
serious intervention in which Washington takes charge would, first,
require a new central authority to supervise the financial
institutions and compel them to support the government’s actions to
stabilize the system. Government can apply killer leverage to the
financial players: Accept our objectives and follow our instructions
or you are left on your own — cut off from government lending
spigots and ineligible for any direct assistance. If they decline to
cooperate, the money guys are stuck with their own mess. If they
resist the government’s orders to keep lending to the real economy of
producers and consumers, banks and brokers will be effectively
isolated, therefore doomed.
Only
with these conditions, and some others, should the federal government
be willing to take ownership — temporarily — of the rotten
financial assets that are dragging down funds, banks and brokerages.
Paulson and the Federal Reserve are trying to replay the bailout
approach used in the 1980s for the savings and loan crisis, but this
situation is utterly different. The failed S&Ls held real assets
— property, houses, shopping centers — that could be readily resold
by the Resolution Trust Corporation at bargain prices. This crisis
involves ethereal financial instruments of unknowable value — not
just the notorious mortgage securities but various derivative
contracts and other esoteric deals that may be virtually worthless.
Despite
what the pols in Washington think, the RTC bailout was also a Wall
Street scandal. Many of the financial firms that had financed the S&L
industry’s reckless lending got to buy back the same properties for
pennies from the RTC — profiting on the upside, then again on the
downside. Guess who picked up the tab? I suspect Wall Street is
envisioning a similar bonanza — the chance to harvest new profit
from their own fraud and criminal irresponsibility.
If
government acts responsibly, it will impose some other conditions on
any broad rescue for the bankers. First, take due bills from any
financial firms that get to hand off their spoiled assets, that is, a
hard contract that repays government from any future profits once the
crisis is over. Second, when the politicians get around to reforming
financial regulations and dismantling the gimmicks and "too big
to fail" institutions, Wall Street firms must be prohibited from
exercising their usual manipulations of the political system. Call
off their lobbyists, bar them from the bribery disguised as campaign
contributions. Any contact or conversations between the assisted
bankers and financial houses with government agencies or elected
politicians must be promptly reported to the public, just as
regulated industries are required to do when they call on government
regulars.
More
important, if the taxpayers are compelled to refinance the villains
in this drama, then Americans at large are entitled to equivalent
treatment in their crisis. That means the suspension of home
foreclosures and personal bankruptcies for debt-soaked families
during the duration of this crisis. The debtors will not escape
injury and loss — their situation is too dire — but they deserve
equal protection from government, the chance to work out things
gradually over some years on reasonable terms.
The
government, meanwhile, may have to create another emergency agency,
something like the New Deal, that lends directly to the real economy
— businesses, solvent banks, buyers and sellers in consumer markets.
We don’t know how much damage has been done to economic growth or how
long the cold spell will last, but I don’t trust the bankers in the
meantime to provide investment capital and credit. If necessary,
Washington has to fill that role, too.
Finally,
the crisis is global, obviously, and requires concerted global
action. Robert A. Johnson, a veteran of global finance now working
with the Campaign for America’s Future, suggests that our global
trading partners may recognize the need for self-interested
cooperation and can negotiate temporary — maybe permanent — reforms
to balance the trading system and keep it functioning, while leading
nations work to put the global financial system back in business.
The
agenda is staggering. The United States is ill equipped to deal with
it smartly, not to mention wisely. We have a brain-dead lame duck in
the White House. The two presidential candidates are trapped by
events, trying to say something relevant without getting blamed for
the disaster. The people should make themselves heard in Washington,
even if only to share their outrage.
William
Greider is the author of, most recently, "The
Soul of Capitalism" (Simon
& Schuster).
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this story online at: http://www.alternet.org/story/99660/
