I am lamenting the fact that my two senators voted to bailout Wall Street (my House Represenative, Patrick Kennedy, made the same mistake). I know I'm not the only one. Oh, how I wish I lived in Ted Kennedy's state (he did not vote on the bailout bill) or had Russ Feingold represent me. What is our government doing to us: first they bailout Fannie Mae and Freddie Mac, then they throw literally tons of money at the problem without any required changes in the financial system that is so broken that it created the mess we are just beginning to find ourselves in. Below the fold is my letter to Senators Jack Reed and Sheldon Whitehouse. I want to keep the heat on this issue. I have not mailed the letters yet because the Senate (and House) website (which is where I'd hoped to find their mailing addresses) has not been working all weekend long (what's up with that, anyone know?).
October 11, 2008
Dear Senator:
Thank you for your recent letter regarding your vote on a most historic bill, a law that is now irrevocably tied to you and our president.
The Emergency Economic Stabilization Act (H.R. 1424) was one of the most important bills to come before Congress in a long time. It has implications for not only the current functioning of the economy, but also implications for how commercial banks and other financial institutions conduct their business. Its importance deserved careful, meticulous deliberation; instead, with your vote, it was rushed through so quickly that taxpayers had barely a chance to know what was contained in the bill let alone opportunity to communicate their positions on the bill to their senators and representatives (although the media consistently reported that taxpayers, like myself, who contacted their Congresspersons were overwhelmingly against a government bailout of Wall Street). I have numerous, serious concerns about the bill, its passage, and its effect on the lives of Americans. I assure you, I am not alone. Those concerns fall under three categories: (1) the need to have considered such legislation in the first place especially given the persons who were responsible for impregnating the idea of a Wall Street bailout in the minds of Congress and the rest of America; (2) the lack of thoughtful debate about the bill and what specifically it contains; and (3) the effect the law will have on the economy and how Wall Street and other industries will now view the United States taxpayer and our government. Let me address each of these broad areas of concern in some detail with questions for you about my specific concerns.
First, we had heard from the Bush administration for years that the fundamentals of the United States economy were solid—from President Bush himself, from two Federal Reserve chairs, and from U.S. Treasury secretary Henry Paulson who prior to his current position was the Chief Executive Officer of Goldman Sachs since the firm’s initial public offering in May, 1999 and who had begun his work there with a $35 million yearly salary plus stock options. We heard his reassuring words about the economy when Mr. Paulson filed to sell his 3.23 million shares of Goldman Sachs stock on June 30, 2006 (worth about $492 million) and we heard his words just weeks before the Bush administration’s complete and total reversal when it announced that a major financial crisis was looming in the very near future (which was incidentally just before Goldman Sachs announced it was going to change its status from broker to "Bank holding" and thus be able to seek liquidities from the Federal Reserve Board). However much we might want to agree with our President, when it has come to enormous issues with worldwide impacts, George W. Bush has been quite wrong. I’ll mention the disinformation campaign against the Iraqi government following the terrorist attacks on the United States on September 11, 2001, and the disinformation campaign about human activity and global climate change as just two such examples. (There were no weapons of mass destruction in Iraq and no connection between 9/11 and Saddam Hussein as repeatedly claimed by the Bush administration as we all now know; and, as experts tell us, human activity plays a significant role in global climate change). Given this president’s extremely poor track record, I ask you why did you believe the Bush administration when it said that the credit, home mortgage and derivatives meltdowns required immediate governmental action in the form of a Wall Street bailout law in what was a complete reversal from years of previous statements about the economy? If Mr. Bush and Mr. Paulson could have been so very wrong about the state of the country’s economic fundamentals for so long and to have only realized, almost after the fact, that the so-called fundamentals are, in fact, all wrong (or, more cynically, if they had willfully created a disinformation campaign about the economy’s well-being for years), how is it that you came to quickly believe they were correct about the need for immediate non-market corrective action? Did you not hear of Satyajit Das of Australia, an expert on credit derivatives, who warned back in September, 2007, of a major credit market meltdown, or read his 4,200-page book on derivatives? And what about the scores of respected economists who opined that a governmental bailout of Wall Street would be both unwise and ineffective? How much weight, senator, did you give to those expert opinions in your decision that the Bush Administration was, at last, correct about something? I’ll tangentially state here that when a mortgage meltdown occurred in the early 1980s, the idea of bailing out failing American family farms was not a serious consideration by the government. You’ll recall that many thousands of American farming families lost their livelihoods, their homesteads, and their farms (those farms have now been replaced by-and-large by massive corporate farming operations with "employees" not farmers; the treatment of the livestock has become far from humane in these farming factories; the environmental impacts of the new farms are staggeringly harmful; and rural poverty levels have since shot upwards). A fundamental similarity between today’s financial sector meltdown and the farm foreclosures of the 1980s is greed; it was present among bankers (not farmers) during the farming crisis as evidenced by bankers taking little, if any, steps to prevent farm foreclosures; and, unbridled greed is what created the default swap derivatives and other fake asset "financial products" which the financial sector will now get paid for having created. They’ll get paid, at some point, with my tax dollars.
The final permutation of the Emergency Economic Stabilization Act was hastily crafted on October 1, 2008, and it was passed by both houses of Congress, as you know, less than 48 hours after its creation. It provides hundreds of billions of dollars to companies whose practices should not be rewarded for poor business practice. You have commented to me, not incorrectly, that the bill had bipartisan support. This, of course, paints only part of the picture, because the bill also had bipartisan opposition. The bill was passed with such speed—everyone agrees—because those like you and President Bush claimed that the government’s attempt at corrective action needed to happen swiftly in order to be effective (and you and Mr. Bush said it would have a quick corrective effect on the financial markets). Deliberating carefully on what details made up the bill (and importantly what was not to be put in the bill), and debating whether a government bailout of Wall Street was even the prudent thing to do, was simply not an option according to the supporters of the bill. It’s mystifying how a supposedly crucial piece of legislation should receive almost no debate, or how it could be voted on before the public could become aware of its contents. Our president was not only successful at herding the Congress, he was successful at making it stampede toward Wall Street with billions of dollars.
On the day the bill was passed, the Dow Jones Industrial Average closed at around 11,000 points. Since the bill’s passage, the Dow has sunk over 20%. Banks loaning to other banks has also continued to decline since the bill’s passage (the words "seized up" and "frozen" are often used by those reporting the credit situation). Russia and Iceland suspended trading on their markets; other foreign markets also plummeted. Unfortunately, and despite the warnings of economists and despite the loud, passionate protests of people you will no doubt try to curry favor when re-election time comes around, you, my senator, and three quarters of Senate members grabbed the first bucket of liquid to throw on a building you were told was burning without noticing the bucket was filled with gasoline.
Aside from the bailout law failing to do what you and President Bush alleged it would do in the short-term, I have grave concerns about what it will actually do over time. You have said that the law provides for taxpayers to benefit, via warrants, if/when the mortgages purchased from banks are later sold for a profit. It’s true that in Section 113 of the bailout bill, the one titled "Minimization of Long-term Costs and Maximization of Benefits for Taxpayers," money is to be given back to the government via warrants. Yet, an exception under subsection 3a, "Conditions on Purchase Authority for Warrants and Debt Instruments" works to prevent the government from ever recouping a penny. As you failed to mention in your letter to me, the clause (loophole) titled "Exceptions -- De Minimis," states that any debt instruments worth less than $100 million won't trigger the payback provision found in Section 113. Since banks are in the business to make money, they can simply issue their debt in blocks of less than $100 million, thus avoiding the government’s acquisition of any profits made by a mortgage sold at a profit. Folly, senator, cruel folly. And you signed off on it. Then there is the loophole for banking executives, the one that keeps the golden parachutes golden: it allows financial institutions the opportunity to "recover" senior executive bonuses and pay incentives of the period when the government had a stake in their company. You signed off on that too.
What is missing from the bailout bill is a requirement that a Congressional committee investigate whether or not members of the U.S. Treasury and/or Federal Reserve who provided Congress with testimony about the state of the economy over the past several years were willfully deceiving Congress and/or whether they had any conflicts-of-interest regarding their testimony to Congress and/or whether they were grossly inept. Instead, the bill that you and President Bush signed gives the Treasury secretary unimaginable powers, including powers involving the well-being of his former employer. What is also missing from the law are any progressive lending and trading reforms. Mortgages should never be traded as securities. Period. Banks should not be allowed to sell any home mortgage that they have brokered. Period. These simple, progressive changes would keep the hometown banking and commercial banking sectors from defaulting to the greedy gambling practices that have led so many Americans to be so legitimately angry and anxious about the state of the economy. Because there are no industry reforms in the bailout law, there is nothing in place that could have a positive effect on the economy in the long-term. More than a few experts have said the bill you and President Bush signed into law will trigger high inflation. While that remains to be seen, for sure printing U.S. dollars for this bailout with no matching capital devalues the dollar, making purchasing power less and thus slowing the economy and the economic prospects of American citizens. President Bush said three days ago that he believes in the long-run the economy will turn around; but, as NPR’s senior correspondent, Daniel Schorr, was quick to note, "In the long run, we’ll all be dead."
How will Wall Street now view the United States taxpayer and our government in light of the bailout bill becoming law? Have you asked yourself this question, senator? Without consequences for poor judgment and poor business practices, it would appear that one obvious outcome would be for Wall Street to keep doing its business as usual: create fake wealth through mortgage mark-ups and derivatives trading, then when that Ponzi scheme collapses, demand the government hit the "reset" button and bail them out. Have you wondered, senator, how the bill you and President Bush signed into law will affect other industries? In part because they failed to focus on innovation, GM and Ford have, rightfully, lost market share in the U.S. and foreign auto sales markets. Are they next in line for a governmental bailout? If ConAgra or some other mega-agricultural corporation verged on the brink of financial collapse, would the government rush to feed it money to keep it afloat when that same government turned its back on family farms in financial straits? The actions you and President Bush have taken by passing the Wall Street bailout bill are not about Democrat versus Republican. It’s not about left versus right or even helping the shrinking middle class or helping the growing working poor. The Wall Street bailout law you and the president hastily passed with an almost absence of debate is about making certain that wealth and economic power are kept in the hands of the few.
It blows my mind that the guy who should be under investigation is instead given billions of dollars of taxpayer money to bailout his colleagues with the help of my three Democratic Congressmen. Of course I could have bitched about the bill's pork to my senators, but in my mind that's the least problematic thing about the bill (although I concede it was the pork that got the bill passed). I could have told my senators that the last time I got my haircut my barber said of his situation when talking about the economy: "I'll never be able to buy a home." He's probably right (and compare that life with the AIG set living it up at Half Moon Bay).