The more I learn about the $700 billion dollar bailout, the more terrified I am. It does nothing to restore confidence and sanity in our financial system, leaves the taxpayers with hundreds of billions of dollars of liability, rewards the wall street companies that got us into this mess, gives the Bush administration even more power, and in fact it will worsen the depression by destroying the AAA rating of the US government.
I am urging everyone to call their Congressmen and do whatever is necessary to oppose the bailout plan as current structured.
First some facts:
The most egregious part of this plan is that it is an imperial power grab by the Bush administration:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Does this sound familiar? Does the Authorization for Use of Military Force Against Iraq Resolution of 2002 rings a bell? This proposal is the same thing except with finance instead of war. Paulson can send the entire $700 billion into the hands of the wall street executives, and we there would be nothing we can do. We have enough power grabs from the Bush administration already; we don't need to give him even more unchecked powers.
Now Paulson has been saying that the treasury will buy assets at "fair market prices." If you really believe that, then I suggest that you start working on the Iraq WMD's. The fact is that these companies can sell their assets at fair market prices right now! The entire point of this exercise is to buy assets at above market prices to transfer wealth from the taxpayers to the wall street companies, because without it many of them will be bankrupt. Just look at what Paulson is saying in private:
...behind closed doors, Paulson describes the plan differently. He explicitly says that it will buy assets at above market prices (although he still claims that they are undervalued) because the holders won't sell at market prices. Anna Eshoo pressed him on how the government can compel the holders to sell, and he basically dodged the question. I think that's because he didn't want to admit that the government would just keep offering more and more.
When Paulson presents a different plan in public than in private, you know something is up. It is not an accident that the words "fair market price" is not in the proposal.
And lastly, this depression is not yet as bad as it could have been because we are the recipient of a quiet bailout from foreign central banks, who keeps buying US treasuries to hold down the price of their currencies. But their buying of US assets is coming under increasing amount of pressure. They can still buy US treasuries because of the AAA rating of the US government. However that AAA rating will certainly be in jeopardy if the US takes on an additional $700 billion dollars of debt onto its balance sheet. Any plan that does not look credible at putting the taxpayers' and lender's money to the best use and restoring prudent oversight of the financial system will backfire by causing our foreign funding sources to dry up.
Any bailout plan must include reform and at least some potential for upside for the taxpayers. The time to extract concession from wall street is NOW because we have something that they need. But once the $700 billion check is signed, that power slips away. Unless the reforms comes with the bailout as part of the package, it will never be passed. Remember that passing legislation is always harder than stalling it.
Frankly I don't see the urgency of passing such a big bailout package right now. The entire financial system is not going to melt down overnight (it is more like a slow motion train wreck). And the entire modus operandi of the Bush administration is to sit on their hands and kick the problems down for the next administration to solve. So why can't they sit on their hands for 2 more months until the next president is sworn in? If this proposal is passed, the US government will be in so much debt that Obama's ambitious plans will simply have to be gutted.
Thank god Obama is making sense on this:
Senator Obama's Statement of Principles for the Treasury Proposal