HOW CAN WE FIX THE PROBLEM?

Economist Dean Baker Lays Out Progressive Principles for the Bailout

“The Fed and Treasury are right to take steps to avert this disaster. While there is an urgency to put a bailout program in place, there are several important issues that Congress should address in the context of bailout. While there is not time to prepare all the details of the financial restructuring that will follow after the bailout, there can be an agreement on the outlines that this restructuring should take. This list of suggestions is presented in that context:

“Principles to Guide the Bailout

“1) Financial institutions should be forced to endure the bulk of the losses with taxpayer funds only used where absolutely necessary to sustain the orderly operation of the financial system.

“2) The bailout must be designed to minimize the opportunity for gaming.

“3) The bailout should be designed to minimize moral hazard.

“4) In the case of delinquent mortgages that come into the government’s possession, there should be an effort to work out an arrangement that allows the homeowner to remain in her house as owner. If this proves impossible, then former homeowners should be allowed to remain in their homes as renters paying the market rent. This should be done even if it leads to losses to the government.

“5) There should be serious efforts to severely restrict executive compensation at any companies that directly benefit from the bailout.”

Other economists questioning the bailout:

Politico: “Many Economists Skeptical of Bailout”
Dean Baker’s Blog
Paul Krugman’s Blog
Robert Reich’s Blog

David Swanson: We Can Stop Paulson’s Plunder

There does not seem to be any way we are going to avoid shelling out a major amount of money to save banks from the unregulated greed of bankers. Dean Baker and Doug Henwood and every person with any economic expertise whom I find credible predicts disaster if we don’t.

But, as Baker pointed out on Democracy Now! this morning, the bailout can punish those responsible rather than rewarding them. It can also be done without creating new dictatorial powers for the executive branch of our government.

Congress must reject Paulson’s Plunder and enact a plan with these progressive principles from the Backbone Campaign:

A. The people who caused the problem or profited most should pay for it

1. Highly compensated executives total compensation should be capped or taxed heavily as a condition for being bailed out.
2. Tobin tax on all transactions in Finance, Insurance and Real Estate including currency transactions.
3. Government takes an equity stake, proportionate to the size of the bailout
4. Tax hedge fund managers’ income
5. Accountability - fire executives of failed companies as done in the UK, and abrogate their severance packages.
6. Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers.

B. Re-regulate to prevent this from happening again

1. Direct the Federal Reserve to intervene to prevent asset bubbles.
2. Extend reserve requirements to new security categories
3. Regulate the packaging of loans so they can be evaluated, rated, and priced rationally.
4. Regulate hedge funds and private equity funds in a way comparable to banks

C. Include Main Street in the bailout and invest in a new productive economy

1. Establish a moratorium on foreclosures, renegotiating mortgages or institute a rent-to-own plan to keep people in homes.
2. Create a major economic recovery package which puts Americans to work at decent wages, in productive jobs that add value to homes and communities.
3. Invest the taxes on speculation, executive compensation, and the surtax on the wealthy in clean energy, infrastructure, education, and health care.

You can send this proposal to Congress by clicking here

MORE TAKES

Dean Baker | Bush Brings WMD Line to Wall Street

Dean Baker, Truthout: “Remember how President Bush got Condoleezza Rice and Colin Powell to run around warning about Saddam Hussein’s nuclear bombs? This phony scare tactic got Congress to give him the authorization he needed to start the Iraq war. Even though his credibility has vanished, in large part because of the Iraq war, President Bush is again using a lie to cow Congress into giving him a huge blank check. This time, the check is for $700 billion, to be handed over to Treasury Secretary Henry Paulson, to spend pretty much as he wants.”

Can You Trust a Wall Street Veteran With a Wall Street Bailout?

Kevin G. Hall, McClatchy Newspapers: “Making the rounds on the Sunday morning talk shows, Treasury Secretary Henry Paulson repeatedly said today’s financial problems were long in the making. He should know. He was part of the Gold Rush that has brought the global financial system to the brink of collapse. Paulson presided over one of the most profitable runs on Wall Street as chairman and chief executive officer of investment banking titan Goldman Sachs & Co. from 1999 until President Bush nominated him on May 30, 2006 to take over the Treasury Department.”

Paul Krugman | Cash for Trash

Paul Krugman, The New York Times: “Some skeptics are calling Henry Paulson’s $700 billion rescue plan for the U.S. financial system ‘cash for trash.’ Others are calling the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force, the infamous bill that gave the Bush administration the green light to invade Iraq.”

The $700 Billion Bailout: One More Weapon of Mass Deception

Not since the Bush administration’s lies about Iraq’s “weapons of mass destruction” have the American people been so despicably misled.

The Bush administration’s proposal to buy, with taxpayers’ money, $700 billion of toxic liabilities from the corporate financial titans of Wall Street is a fraud. It is by no means necessary, as Treasury Secretary Henry Paulson claims in the agency’s Fact Sheet, “to promote market stability, and help protect American families and the U.S. economy.”

It is necessary only to assure the financial survival of Wall Street banks and brokerages, the administration’s most loyal supporters and its greatest political contributors — and in large measure the cause of the financial meltdown the country is facing.

These financial corporations lobbied ferociously to be free of government regulation. Had they not succeeded, they could not have done what they did next: They created and leveraged trillions of dollars of complex “derivatives” — mortgage-backed securities, collateralized debt obligations and credit default swaps — all riding on an unprecedented real estate bubble stimulated by their frenzy of creative finance. When the bubble burst, as bubbles do, many of these financial titans faced bankruptcy, their obligations far exceeding their assets.