U.S. Economy Bailouts: Another (Neo)Con Job In The Works

First, take this:

Bush Backs Unlimited Compensation For Disgraced CEOs

Today, the White House released a statement criticizing Congress’s potential plan to limit CEO compensation at the companies the federal government is bailing out, firmly standing against any “punitive measures”:

We certainly understand and are sympathetic to the sentiment regarding the pay of CEOs and senior management of these firms, but we have to focus on the problem, and the problem is that we need these firms to participate in the program and sell us this debt. Having punitive measures would provide a disincentive for firms to participate, and that would make the program much less likely to succeed.

CEO compensation and corporate governance in public companies are very important issues — especially when receiving taxpayer support — but we need to be focused on fixing this problem in our markets right now. We can and should return to those issues once we get this legislation passed.

President Bush also released another statement earlier today warning Congress against inserting any “unrelated provisions” — such as help for struggling homeowners — in the $700 billion Wall Street bailout.

(Read more here)

Then take this:

Lawmakers React To Bailout

Man, I wish I knew which Democratic lawmaker said this:

We may strip out all the gives to industry in the predatory mortgage lending bill that the House passed last November, which hasn’t budged in the Senate, and include that in the bill. There are other ideas on the table but they are going to be tough to work out before next week.

I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.

I’m open to other ideas, and I am looking for volunteers who want to hold the sons of bitches so I can beat the crap out of them.

Unfortunately, that kind of anger and cojones are few and far between in DC, and another lawmaker outlines how he sees it going:

Here’s the industry’s play: progressives will approach Nancy with ideas for reform, and she’ll agree to push for their proposals, and she’ll really mean it. Then industry lobbyists will go to Dennis Moore, Melissa Bean and a few other Democrats, and tell them how dire the consequences of the proposals would be, and that the members who understand how the economy works need to step up to stop Nancy and the crazy liberals from doing something rash. Then those Democrats will go to Steny and tell him how terrible Nancy’s crazy ideas would be, and how we can’t rush into something like that without much, much more thought. [..] The only way, our leadership will conclude, to get anything at all passed is to include nothing more than the inconsequential proposals that the lobbyists agreed to. Then we’ll all go along because it would be wildly irresponsible not to act when we’re staring over the brink of a complete collapse of world financial markets.

I’d diagram it for you if I had a chalkboard. I’ve seen the play again and again, and it always goes for long yardage.

The only defense for the play is for a significant group of Democrats to say they won’t vote for any proposal that isn’t unpalatable to industry, and mean it. It’s a pretty high stakes game of chicken, but otherwise we come out of this with nothing but a $700 billion giveaway to a crooked industry.

(Read more here)

Now read this:

Paulson to the US - Grab Your Ankles

There's a plan afoot to screw the US taxpayer. It was proposed by the Treasury Secretary. He will attempt to ram it through Congress this week using scare tactics. The bottom line is this is the worst piece of legislation to come down the pike in a very long time. It should not be passed in present form.

Let me start with a point made by fellow econ blogger Mish:

It was only a month ago Paulson was reiterating to anyone who would listen how sound our banking system is. The fact of the matter is that neither Paulson nor Bernanke saw this coming, yet now Congress is supposed to trust they now "know" the solution.

Damn good point. In fact, everyone who is surprised by what happened over the last few weeks (which is damn well near everybody) should sit down and not even get involved in solving the current problem.

Here is a post that is currently up on my blog:

This is one of the worst bills to ever be proposed. Let's look at the primary problem:

If the Bush administration has its way, anyone harmed by the Treasury Department's handling of the $700 billion Wall Street bailout might have no remedy.

Draft legislation proposes sweeping powers for Treasury Secretary Henry Paulson to buy and sell mortgage-related securities however he sees fit. Aside from requiring periodic reports to Congress, the bill provides no oversight of the bailout's management -- and specifically bars any court or agency from reviewing it.

There is no mention of any accountability in this bill. Much like the problem that got us in this mess -- no oversight -- the exact same problem continues throughout the bailout.

Let's look at some other glaring problems:

Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets

Like -- what other kinds of assets? How about a car owned by the president of the IMF? That's an asset, isn't it? This is way too broad an authority to anybody.

Reporting. Within three months of the first asset purchases under the program, and semi-annually thereafter, Treasury will provide the appropriate Congressional committees with regular updates on the program.

So -- twice a year we get to hear how out tax dollars are spent. That will probably mean it will be accompanied by some report. But that's it. That's just not enough.

To qualify for the program, assets must have been originated or issued on or before September 17, 2008. Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.

Basically, the Treasury Secretary has the ability to determine anybody is eligible if be sees fit. It's hard to see Bernanke disagreeing on anything Paulson says.

The bottom line is this bill is replete with statements of "The Treasury Secretary's discretion". That's just not going to work when somebody wants $700 billion. That smacks of dictatorship and it should be avoided at all costs. Lack of oversight is what got us into this mess.

(Read more here)

And lastly, read this:

For The Love Of Money

Those of us who seek to intervene in policy debates in favor of economic justice and environmentally sustainability are regularly assured by the world's power brokers that they are fully committed to these goals so long as economic growth and the expansion of free trade are not compromised by governmental restraints on the market. So sacred have growth and free trade become in our modern culture that only rarely do we find the courage to ask why they should be given precedence over the needs of people and nature. Indeed, why should we consider accelerating growth and trade to be of any importance at all except to the extent that they serve people and nature?

When the proponents of growth, market deregulation, and free trade tout their benefits, it is well to bear in mind what some of the most outspoken of these proponents really have in mind. Take this account from a recent issue of Forbes magazine.

As disillusion with socialism and other forms of statist economics spreads, private, personal initiative is being released to seek its destiny. Wealth, naturally, follows. The two big openings for free enterprise in this decade have come in Latin America and the Far East. Not surprisingly, the biggest clusters of new billionaires on our list have risen from the ferment of these two regions. Eleven new Mexican billionaires in two years, seven more ethnic Chinese.

Taking a slightly more populist view, Business Week presented its own special report titled "A Millionaire a Minute," providing this breathless account of what the free market has accomplished in Asia.

Wealth.. . . Now East Asia is generating its own wealth on a speed and scale that probably is without historical precedent. The number of non-Japanese Asian multimillionaires is expected to double to 800,000 by 1996. . . . East Asia will surpass Japan in purchasing power within a decade. . . . There are new markets for everything from Mercedes Benz cars to Motorola mobile phones to Fidelity mutual funds. . . . To find the nearest precedent, you need to rewind U.S. history 100 years to the days before strong unions, securities watchdogs and antitrust laws.

Neither article made more than passing reference to the 675 million Asians who continue to live in absolute deprivation. So there we have it. In the eyes of two leading business journals, economic success is about creating millionaires and billionaires by denying workers the right to organize independent unions and giving free reign to securities fraud and the extraction of monopoly profits.

Most everyone is aware that we live in an unequal world. Few realize, however, just how extreme the inequality has become or how fast the gap between the poor and the super rich is growing. Forbes tells us the world now has 358 billionaires. Their combined net worth exceeds the combined net worth of the world's poorest 2½ billion people. This is but one manifestation of the extreme economic and social distortions created by the globalized free market economy idealized by business publications such as Forbes and Business Week.

Evidence is mounting that economic growth and free trade are not leading us toward economic justice and environmental sustainability. To the contrary, they are taking us in the direction of increasing economic injustice and environmental unsustainability. The debates over jobs versus the environment miss a basic point. Assuring everyone the means to meet their basic needs and achieving a sustainable balance with the environment are mutually supportive goals. Indeed, there are powerful theoretical arguments why, in a resource scarce world, neither is possible without the other. There is, however, an irreconcilable conflict between the goal of creating economically just and environmentally sustainable societies and embracing sustained economic growth, unregulated markets, and free trade as the organizing principles of public policy. The resulting policies are well suited to producing more millionaires and billionaires. They are ill suited to achieving justice and sustainability.

THE MONEY GAME

The world's most powerful instrument of governance is not a government. Nor is it a global corporation. Rather it is a global financial system that is running dangerously out of control.

Each day half a million to a million people--primarily Western Europeans, North Americans, and Japanese--arise as dawn reaches their part of the world, turn on their computers, and leave the real world of people, things, and nature to immerse themselves in playing the world's most lucrative computer game: the money game. As their computers come on line, they enter a world of cyberspace constructed of numbers that represent money and complex rules by which those numbers can be converted into a seemingly infinite variety of financial instruments, each with its own distinctive risks and reproductive qualities. Through their interactions, the players engage in competitive transactions aimed at acquiring for their own accounts the money that other players hold.

Players can also pyramid the amount of money in play by borrowing from one another and bidding up prices. Indeed, the money game players have been so successful in creating play money that for every $1 now circulating in the productive world economy of real goods and services, it is estimated that there is $20 to $50 circulating in the world of pure finance--"investment" funds completely delinked from the creation of real value. In the international currency markets alone, some $800 billion to $1 trillion changes hands each day--unrelated to productive investment or trade in actual goods and services.

Not only is the money game challenging and fun, the play money it generates can be exchanged for real money to buy things from people who work in the real world--lots of things. Unfortunately for the rest of us, though it is played like a game and the transactions involve nothing more than moving numbers from one electronic account to another through a global web of computers, the money game has enormous real consequences.

(Read more here)

Now put it all together while reading this:

The New New Deal
Footing the bill and holding the bag

Funny how gambling terms routinely pop us in discussions of globalized economics. Here I’m not just talking about desperate absurdities like state-sponsored lotteries to finance public education of all things. It’s about the “casino economy” itself, where international “players,” “stakeholders,” and “high rollers” “win” and “lose” fortunes by betting on the market’s ups and downs. And then there are periodic reshufflings and “new deals” like the famous one following the Great Crash of the 1930s. All of those are gambling terms.

Presently (following the Great Crash of 2008), we’re in the midst of yet another reshuffling and redistribution of cards – another New Deal. But whereas 30s version shifted money from the haves to the have-nots, the re-run promises an income redistribution from the disappearing middle class to the super-rich. They’re the gambling addicts who got us here in the first place.

And what will we get in return? Nothing, nada, zip.

The gamblers’ codependent enablers are making sure of that. Samuelson and Bernanke, along with corporation heads, their lawyers, professional economists, and the government representatives who share their beds are intent on pushing through a one-sided deal. They think we’re all too stupid to understand what they’re doing. So with a wink and a nod, they slip aces from the bottom of the deck into the hands of the card sharks that have been cheating all along.

Watch closely. Samuelson and Co. want to cancel their cronies’ losses, reshuffle the cards, and allow their pals some kind of do-over. All of this flies in the face of what we’ve been told are the rules of the game. Adam Smith’s version of Hoyle says losers should pay their gambling debts and suffer the consequences.

Of course they tell us that the consequences would be too much for the rest of us to bear. It would be the end of civilization as we know it, they warn. I’m still not sure about that. That rationale sounds a lot like the trickle-down thinking everyone’s running away from as fast as they can. It pretends that we’ve all been somehow benefitting from the market’s unreasonable exuberance over the last few years. I don’t think so. The ones cashing out at the casino bank are drawing those seven figure salaries we read about. Even Bear Stearns and Lehman execs are not suffering. Feeling no pain at all, they’re comfortably drifting to earth under golden parachutes.

(Read more here)

Conclusion: read the title of the current post.

Any questions?