I know many of you must be listeners to This American Life, as I am. I hope many of you have had the opportunity to listen to the two shows they have produced this year in conjunction with NPR News to explain in simple terms the causes and consequences of the current financial crisis. If you have not, I highly recommend checking out the links for the show from June 8, 2008 Giant Pool of Money and the show from October 3, 2008 Another Frightening Show About the Economy.
I bring this up today not just to shamelessly pimp for Ira Glass and his team's outstanding work, but to bring to the attention of the DKos community, many of whom I know are dissatisfied with the Bailout Bill that was passed last week, of an alternative plan to using the $700b to buy toxic assets that would better protect American taxpayers against losing money in attempting to rescue banks.
Below the fold, I'd like to introduce you to the Stock Injection Plan, a provision that is currently in the bill as signed into law, and something we can encourage support for without having to overhaul the bill as a whole and go through the legislative process again.
The Stock Injection Plan has received little attention in the media. Google it, and all you recieve are Diggs, Twitters, and links to the NPR story about it.
As simply as possible, here it is:
There was little debate on whether or not we would be required to spend a large portion of government (read: our) money on rescuing troubled banks, for the sake of preserving the economic system and thus preventing further consequences for the United States economy and taxpayers.
The Paulson plan sought to spend that money by buying up bank's toxic assets, ones stalled in the system that were draining money from banks, in order to free up capital for the banks to continue to function.
The alternative that was posed by some economists, that has been largely ignored, is the SIP. What it does is, rather than using the money allocated by the bailout plan to purchase toxic assets, the Treasury would use it to purchase stocks (priority stocks at that) from banks and, rather than taking potentially worthless assets, using the money to buy ownership in the bank, effectively making the government (and therefore, us), partial owners and shareholders of the individual banks. This is a much better alternative for Americans, because it will save us from the complications and risks of owning assets and give us a cushion as priority stock owners, as regular shareholders (Wall Street Investors) will lose money from poor decisions before we do. It will also give the government the ability to influence CEO retention and termination--giving us the power to kick out those who have made poor decisions in order to create a precedent that actions such as those can not and will not be tolerated.
This is similar to the Intervention Plan proposed by UK Prime Minister Gordon Brown yesterday, which will seek to help ailing banks by taking partial ownership.
Unfortunately, Congress passed the Paulson plan, so there is no hope for the alternative, right?
Wrong.
From the Bailout Bill:
IN GENERAL.The Secretary may not purchase, or make any commitment to purchase, any troubled asset under the authority of this Act, unless the Secretary receives from the financial institution from which such assets are to be purchased
- in the case of a financial institution, the securities of which are traded on a national securities exchange, a warrant giving the right to the Secretary to receive nonvoting common stock or preferred stock in such financial institution, or voting stock with respect to which, the Secretary agrees not to exercise voting power, as the Secretary determines appropriate; or
- in the case of any financial institution other than one described in subparagraph (A), a warrant for common or preferred stock, or a senior debt instrument from such financial institution, as described in paragraph (2)(C).
Secretary Paulson has the option, LAID OUT IN THIS BILL, of choosing the alternative plan for spending the bailout money.
I think Kossacks, and all Americans, who are concerned with the faults they see in the Bailout, would be well-served to contact their representatives, and to contact the Treasury, and let them know that we want them to support and choose this alternative.
They have the power to do so. They have the power to spend this money wisely. We have the power to let them know that's what we want.
And Updated from yesterday, when I wrote this diary: According to the NYT, the Treasury is starting to consider this alternative. Let's let them know we agree with the plan.