David Corn: Slow Down the Mother of All Bailouts

[babylonsister]

http://blogs.cqpolitics.com/davidcorn/2008/09/slow-down-the-mother-of-all-ba.html

Slow Down the Mother of All Bailouts

By David Corn | September 22, 2008 10:51 AM


Crisis sometimes brings out the worst in Washington. There's a rush to judgment and solution. And the parties already with much say in Washington end up with much say in what happens--even if they were partly to blame for the crisis. So it's no surprise that now the Big Bailout Bill is rolling like a rockslide in Washington. How many legislators--either Ds or Rs--are going to throw themselves in front of it and ask the right questions and, if need be, stop a bailout that may not be a good deal for taxpayers?

One of the best set of proposals for making this bailout work for Main Street and Wall Street comes from former Labor Secretary Robert Reich. On his own blog, he writes (and it's worth quoting at length):

Treasury Secretary Hank Paulson, presumably representing the Bush administration but indirectly representing Wall Street, and Fed Chief Ben Bernanke, want a blank check from Congress for $700 billion or possibly a trillion dollars or more to take bad debt off Wall Street's balance sheets. Never before in the history of American capitalism has so much been asked of so many for (at least in the first instance) so few.

Put yourself in the shoes of a member of Congress, including our two presidential candidates. The Treasury Secretary and Fed Chair have told you this is necessary to save the economy. If you don't agree, you risk a meltdown of the entire global financial system. Your own constituents' savings could go down with it. An election is six weeks away. Besides, in the last two days of trading, since rumors spread that the Treasury and the Fed were planning something of this sort, stock prices revived.

Now - quick -- what do you do? You have no choice but to say yes.

But you might also set some conditions on Wall Street.

The public doesn't like a blank check. They think this whole bailout idea is nuts. They see fat cats on Wall Street who have raked in zillions for years, now extorting in effect $2,000 to $5,000 from every American family to make up for their own nonfeasance, malfeasance, greed, and just plain stupidity. Wall Street's request for a blank check comes at the same time most of the public is worried about their jobs and declining wages, and having enough money to pay for gas and food and health insurance, meet their car payments and mortgage payments, and save for their retirement and childrens' college education. And so the public is asking: Why should Wall Street get bailed out by me when I'm getting screwed?

So if you are a member of Congress, you just might be in a position to demand from Wall Street certain conditions in return for the blank check.

My five nominees:

1. The government (i.e., taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power - especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

Wall Streeters may not like these conditions. Well, you should tell them that the public doesn't like the idea of bailing out Wall Street. So if Wall Street doesn't accept these conditions, it doesn't get the blank check.

I hope that Reich gets all over the cable networks in the next few days, providing a counterforce to the conventional, let's-get-this-done-now approach of many players in Washington. For a deal this big, there needs to be a big and transparent debate. Members of Congress want to adjourn this week and head home to hit the campaign trail. Sorry, there's some taking care of business that needs doing first. Speed is not the top priority. Getting it right is.

[Old and In the Way]

1. This is good. All Democrats should adopt this as their official position.

It puts a Hobson's choice on McCain and the Republicans....fight these reforms and explain it to the taxpayer/voters of this country.

[crickets]

5. "It puts a Hobson's choice on McCain and the Republicans" Exactly.

As for the Wall Street executives, PACs and lobbyists, it's high time they sit down, close their campaign purses, and speak only when spoken to--at least for a while.

Why should taxpayers finance Wall Street's outsized political power - especially when that power is being exercised to get favorable terms from taxpayers?

Truer words, etc.

[Eric J in MN]

2. I don't agree with number 3.

Executives at investment banks have as much right to donate to political campaigns as anyone else.

[babylonsister]

3. I understand it though. Their self-interests/profit motive

could get in the way, as it seems happened in the McBush campaign. Keep government business and politics separate, if that's even possible.

[Eric J in MN]

4. Executives in any industry want profit.

I don't like how Robert Reich singled out Wall St. executives as people who shouldn't be allowed to donate.