The Paulson Plan is a dud. No, wait, I take it back. It’s not a dud; it’s a naked, heinous reach for power; it’s a very public, very pricey Gentlemen’s Club asking for government financing; it’s not just unnecessary, it’s a swindle.
Lessons from Fiction
To a degree, this is an example of life imitating art. Here’s an instructive little scene from It’s A Wonderful Life:
GEORGE
I have some news for you, folks.
I've just talked to old man Potter,
and he's guaranteed cash payments at
the bank. The bank's going to reopen
next week.
...There is a commotion at the outer doors. A man (Randall)
comes in and makes his way up to Tom.
RANDALL
Tom... Tom, did you get your money?
TOM
No.
RANDALL
Well, I did. Old man Potter'll pay
fifty cents on the dollar for every
share you got.
(shows bills)
CROWD
(ad lib)
Fifty cents on the dollar!
RANDALL
Yes, cash!
TOM
(to George)
Well, what do you say?
GEORGE
Now, Tom, you have to stick to your
original agreement. Now give us sixty
days on this.
TOM
(turning to Randall)
Okay, Randall.
He starts out.
MRS. THOMPSON
Are you going to go to Potter's?
TOM
Better to get half than nothing.
A few other people start for the door. CAMERA PANS WITH
George as he vaults over the counter quickly, speaking to
the people.
GEORGE
Tom! Tom! Randall! Now wait... now
listen... now listen to me. I beg of
you not to do this thing. If Potter
gets hold of this Building and Loan
there'll never be another decent
house built in this town. He's already
got charge of the bank. He's got
the bus line. He's got the department
stores. And now he's after us. Why?
Well, it's very simple. Because we're
cutting in on his business, that's
why. And because he wants to keep
you living in his slums and paying
the kind of rent he decides.
The people are still trying to get out, but some of them
have stood still, listening to him. George has begun to make
an impression on them.
GEORGE
Joe, you lived in one of his houses,
didn't you? Well, have you forgotten?
Have you forgotten what he charged
you for that broken-down shack?
(to Ed)
Here, Ed. You know, you remember
last year when things weren't going
so well, and you couldn't make your
payments. You didn't lose your house,
did you? Do you think Potter would
have let you keep it?
(turns to address the
room again)
Can't you understand what's happening
here? Don't you see what's happening?
Potter isn't selling. Potter's buying!
And why? Because we're panicky and
he's not. That's why. He's picking
up some bargains....
During this scene Mary has come up behind the counter.
Suddenly, as the people once more start moving toward the
door, she holds up a roll of bills and calls out
MARY
How much do you need?
George jumps over the counter and takes the money from Mary.
GEORGE
Hey! I got two thousand dollars!
Here's two thousand dollars. This'll
tide us over until the bank reopens.
We’ve been here before, friends. Or at least, Jimmy Stewart has. Except that there are some notable differences. At the present moment, the panic is being stirred up willfully by Wall Street, the Fed, and the Treasury. Why? Because they want to scare the rest of us into doing something that will benefit them: Wall Street folks want their share price propped up, they want their severance pay; the Treasury wants power, the big head that goes along with having nearly a trillion dollars to spend; the Fed of course does want to ensure economic stability, but this move also seems to parallel their recent expansion of their own powers into things far removed from setting interest rates (which Treasury obligingly played along with, too—Treasury scratches your back, you scratch Treasury’s?).
Keeping Our Heads
So, are we going to panic? Or are we going to keep our heads? Are we going to look for Mr. Potter to bail us out? Or should we perhaps look around for some private capital that could tide us over until things settle down? You see, if we stop to breathe then we’ll realize that there are vastly more options than the ridiculous “Paulson Plan”. One idea is to remember that there are trillions of dollars sitting in not-so-little piles all around the world; the more the government stays out of the way, the more likely it is that these vast pools of liquidity will be dipped into to invest in or outright buy the firms that are failing. For example, Bank of America just bought Merrill Lynch for some 50 billion dollars (in stock), Warren Buffet is throwing $5 billion at Goldman Sachs, and Mitsubishi UFJ is sinking 900 billion yen (OK, that’s “only” $8 billion) into Morgan Stanley. That’s already close to ten percent of the value of the proposed $700 billion bailout. Oh, except that the taxpayers haven’t paid a dime for it.
If the government takes a non-bailout approach, such as facilitating bankruptcy proceedings, then companies will stop waiting around for a better offer from the Treasury, and will try to get themselves sold for something close to what they’re actually worth these days. Instead of letting the banks feast on a $700 billion gourmet meal, we need to unleash a feeding frenzy in which they get gobbled up by the sharks in the economy. There’s already blood in the water, so get out of the way and let nature take its course!
Exhortations
Beware the Japanese model that sows stagnation. Think about the Swedish, but remember that our economy is far larger than theirs. Remember that these guys know what they’re talking about. And never, never forget that the Paulson Plan is coming from the same guys who gave you the pre-Petraeus Iraq War, Hurricane Katrina, and The Economy.