Brookings Institution: Concerns about the Treasury Rescue Plan
Category: politics
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Power Grab
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.
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Worse Than The Disease
NO!!!
Forget about the election. Forget about the war. Forget about it all, because by the time you vote in November, the stupidest thing the government’s done in a long, long time will already have gone down, and it’s gonna be too late.
SEVEN HUNDRED BILLION DOLLARS??? To do what? To save the butts of the guys who got us into this trouble to start with. So let me get this right: Secretary Paulson and the Fed chairman are saying that capitalism works… as long as there’s never any risk for the rich? Only opportunity to make bank, but never a chance to fall down and actually lose money. That would be unthinkable. No, no, little taxpayer, you’ve got it all wrong. Uncles Hank and Ben know what’s really going on. Your retirement is tied up in that failing bank, and it needs to be protected.
No, sorry guys, that’s not really what this is about. This is about unchecked, reckless expansion of executive authority. This is about giving the Treasury department a bigger budget than the Pentagon. This is about paying more than the equivalent of another Iraq war; but it’s not going to Our Boys on the front lines, it’s going to Vinnie the Banker, to Irresponble Ed the mortgage broker, who got in over their heads and need someone to save them from their own actions.
There are other ways to make this work. We don’t have to squander the taxpayers’ inheritance like this. Don’t let this happen, guys. The government and the market will be a new kind of broken, something that the world hasn’t seen since, oh, maybe the collapse of the Soviet Union. This is malfeasance.
Oh, didn’t you know? That’s a crime.
So maybe I get a little worked up about these things sometimes. Maybe I’m a little too doom and gloom. But doesn’t having the federal government buy Wall Street seem like a bad idea to anyone else? (Hey, if it’s for sale….)
Links
Alternative Proposals that Don’t Cost $700 Billion
The Proposal That Does Cost $700 Billion ($700,000,000,000)
- The text of The-Law-That-Must-Not-Be-Passed (Politico)
Reasons Why Handing $700 Billion to Anybody Is Stupid
- Why You Should Hate the Treasury Bailout (Politico)
- Many Economists Skeptical of Bailout (Politico)
- To Whom And For What? (Interfluidity)
- WaPo: Bush Fatigue Hits Bush (Clearly outlines the “crisis mode” power-expansion method used by Bush’s administration)
- WaPo: A Bad Bank Rescue