The Bailout Plan: Welcome to Economic Shock and Awe

See if this sounds familiar:

There is a gathering threat to the safety of the United States. We must take immediate action. Congress must quickly grant the President and the Secretary what they want and also give them full and unfettered authority to execute the plan.

Welcome to Economic Shock and Awe (or as some have dubbed it, according to Paul Krugman, "the Authorization for Use of Financial Force").

Even the amount of taxpayer money being bandied about -- $1 trillion -- is similar. Think you got your money's worth for the Iraq war? Congratulations -- you're about to buy another pricey debacle.

We've seen how negligent the Bush administration is with our money -- flushing billions on wasteful, mismanaged Iraq reconstruction and Katrina recovery projects.

Now the same folks who brought us those no-bid, profit-guaranteed, crony-friendly, war-and-disaster-profiteering boondoggles want us to hand them control of a $700 billion Wall Street slush fund -- with no strings attached. How dumb -- or frightened -- do they think we are?

This is, as Matt Yglesias calls it, "a crisis point for American liberalism." The battle lines are already clear: Paulson and Bush and the Republican Party want a license to reward the worst actors in the financial industry and do nothing for American families suffering the consequences.

Remember a few years ago when lawmaker after lawmaker -- mostly Democrats, but a few Republicans -- said of Iraq, "If I'd known then what I know now, I'd have voted differently."

Well, this time at least some lawmakers -- mostly Democrats, but a few Republicans -- are not being so easily bamboozled. Congressional Democrats, led by Chris Dodd in the Senate and Barney Frank in the House, have put forth proposals doing away with the Paulson's demand for unprecedented authoritarian power and adding a requirement that the government do more to help troubled borrowers refinance their mortgages.

The Treasury appears willing to bend on those elements but sticking points remain, including efforts to limit the pay of executives and Dodd's proposal that taxpayers get a share of the profits if the bad debt being bought rises in value.

Let's hope Democratic resolve holds up against the inevitable charges by the Bush administration that demands for oversight, limits on executive compensation, profit sharing for taxpayers, and aid for struggling homeowners will lead to an economic Armageddon.

There is no question that the need to address this crisis is urgent and that the issues involved are complex. But urgency and complexity cannot be allowed to become excuses for lawmakers, the media, and the public to throw up their hands and allow themselves to be bull-rushed into disastrous public policy.

Over the past 30 years, Americans have been bombarded with sermons evangelizing for the free market religion of the Right, and the supposed correlation between unregulated markets and progress. In the process, the American people have been demoted from citizens to consumers, and sold a bill of goods (rather than a Bill of Rights) about how the almighty market was the essential foundation of democracy.

In the course of selling us on buying, the market-worshippers shredded the modern social contract, the hard-fought consensus that had emerged since the New Deal, which ordered our political priorities, and expressed both our communal concern for the most vulnerable members of society and our disapproval of huge inequalities. We were now supposed to believe that all could be left up to the soulless, self-correcting calculus of supply and demand. Government involvement was an anachronism, regulatory oversight an impediment.

The last few weeks have demolished that notion. In the battle over the proper role of government, the forces of the Right, the high priests of the church of the Free Market -- including Bush, Paulson, and the Masters of Wall Street -- have suffered a monumental defeat. So why are we allowing them to dictate the terms of their surrender?

Follow Arianna Huffington on Twitter: www.twitter.com/ariannahuff

Comments

[LightningJoe]

There IS no social contract, for these Corporatists. They never signed anything by that name, and they have lawyers to prove it. It's true that they prefer to operate according to the law, because it's such a bother remembering all the lies, as it is. And crime doesn't always pay, either. You have to own your own Supreme Court, to be sure of that. But they have no compunctions about doing evil things that don't happen to be blatantly against the law.

The American Rich are the same people who ran businesses that polluted, for as long as it was legal to do so, and in many cases longer. They have shipped our jobs oversees for a tax break, and blocked politically sensitive web addresses for Chinese surfers. They've sold our privacy to spammers, profited from denying us healthcare, and "privatized" our government into incompetence.

We know: The American Rich own the Executive Branch. These are liars, con men, and pirates. I'm not saying anything you don't all know.

So why do we have to put up with these people -- elected or not -- who play us for fools every day, and reflexively con us every chance they get? We should have impeached these criminals long ago, and I'm not so sure it's too late now.

If you think I'm recommending something, maybe I am.

[forsunny]

Otherwise with the bailout in the current form, they will only defer the inevitable economic collapse that is coming and it will be only larger and much more painful.

Of course, there are other factors contributing to this mess. The majority of US households are earning less when adjusted for inflation. The percentage and proportion of lower income households is growing. The US consumers love to live beyond their means on credit extended by foreign countries. If there is political will to correct these factors some of this economic mess will be mitigated.

Regarding foreign debt to the US govt. there seems to be no hope. Real bad times for the US ahead... US assets will be owned by China, UAE, Saudi Arabia. Al Qaida has acheived its objective of destroying the USA, all through the faults of its own people - living beyond their means on credit without anything saved for a rainy day - Just like the Grasshopper and the Ant.

[forsunny]

Isn't it insurance, loan and mortgage guarantees on risky mortgages that did AIG in?
With these complex and highly leveraged instruments, each time housing prices fall 1%, the instruments cause a loss of 30% to the holder. And with the housing bubble having deflated only half the way in upto now, there is still the other half of deflation and decline in housing prices left to go. It is very unlikely housing will turn around before 10 years. In this scenario all such instruments will result in a loss of 600% to the buyers, whether government or private.

So lawmakers better think twice before using taxpayer monies to bailout this crisis or even to insure it. Let the institutions fail, let the market crash and correct itself. Credit for small businesses need not dry up. For internal funding of new credit within the US, fund the remaining responsible banks/credit unions which did not expose themselves to risky investments and loans directly through the fed/treasu­ry/taxpaye­r money. If there is need to stablise the mortgages for owners who can afford to pay them at a lower rate and cannot afford them currently because their variable rate suddenly shot upto 10% refinance them directly though the fed at a reasonable rate eg. 6% fixed. For other bad mortgages, let the lenders go belly up and own the real estate directly at at least 50% dicount from the current values, given that they are likely to still fall quite a bit.

[forsunny]

The current credit crisis was brought about by greedy loan makers, real estate investors, and builders. Currently we are way overbuilt. There are far excess houses than there are legitimate home buyers with the ability to afford them. The CEOs of credit companies and banks were rewarded for the number of credit cards and loans they could make; not on the creditworthiness or sfaety of the loans they issued. The credit companies were eager to rush tonnes of new credit cards to people right after bankruptcy. And the CEOs were rewarder with millions in bonuses.

Now the whole bailout scenario stinks. Both the democratic and the house republican plans. I am glad that the bill didn't pass today.

[Fedup12]

The reason we're all broke is because our government has forced us to buy oil from people who hate us. We can make cars run on water, don't tell me we can't. We can hit a postage stamp thousands of miles away with a nuclear missile. We can put a man on the moon. We can land an unmanned spacecraft on mars, are you people that gullible to believe we can't run our cars on hydrogen made from water. The only reason they won't do it is because they're afraid they will lose all the tax money and the oil companies will have a fit. We will still need oil for the thousands of other products made from oil such as plastics and soaps. So if the government would let them drill here for the oil that we would need, and let us run our cars with water, we would put more people to work here and the price of oil would drop because of less demand, and all of our money would stay here in the states. The book Government Choke Hold explains it all at Huff4president.org

[martinpe]

Ms. Huffington, I believe that this bail-out plan is not going to work because no one is going to jail. I agree with Kramer. We need "Show Trials"!!! I don't have a 401K because I had to spend the retirement money on my mortgage and gasoline to get to work. If my mortgage is sold to another lender for 50cents on the dollar, can I offer the same and buy my own mortgage? I guess not. I hope I don't get another stimules check though, I can't afford the gas price hike again. Can't Wall Street borrow the money they need from the Oil Companies. I heard that they have been doing quite well lately.

[Wrigston]

Here's an idea..

How about all those over-payed CEO's being forced to re-invest last year's salary back into their now-failing institutions? Why should the burden fall to American taxpayers when ceo's who make millions each year get off free and easy? Americans are being asked to take on a huge financial burden "for the good of all Americans", so why not expect the same of the fat-cats who are living large thanks to out-of-this-world salaries? I say if you are the ceo of a bank and you made over 5 million dollars last year, you can afford to relinquish any amount above that. It wouldn't completely cover the $700 billion needed, but it would be a nice chunk. Once that happens, I'm sure many more Americans would feel better about coming up with the difference.

Obviously, that won't ever happen. As is typical, the burden of saving our system lies on the backs of everyday, hard-working Americans who bust their butts day in and day out just to afford basic necessities. It's gonna be a bitter pill, but John Q. Public is gonna have to swallow it because no body else is going to.

[Fedup12]

What about the millions of people who have watched their credit score drop in the last year due to this recession? How is this bailout going to help them? It's not! The only people that benefit from this are the wealthy. The ones who have made it through these hard times brought on by rich and greedy people. Another thing, not all people that have lost their homes during this recession is due to living beyond their means. Millions of people have lost jobs because of this whole thing, so when I hear people say they don't feel sorry for those who got in too deep, maybe they should think about that and shut their mouths.

[Fedup12]

I'm beginning to think that Wall Street is nothing more than a Pyramid, and we have reached the top.

[tommyboy1965]

So were gonna help out banks that are going out of bussiness due to their lending practices. A company helped me with a short sale just so I could sell my home. I owed 35k more than it was worth. So I called Jay over at www.proloanmods.com and asked him what he thought about the bailout. He said he thought it was a scam that the taxpayers will pay for years to come. He said it probaly has no real relief for homeowners other than the fact that it will make sure more banks dont go out of bussiness. He said nonprofits that were helping cover his expenses for homeowners are starting to bail because they have less and less federal dollars. So instead of helping homeowners or programs that help homeowners we're helping out banks. Great job government

[dadw5boys]

I would have told all those business filing bankruptize they would be investigated for INSIDER TRADING for all the BILLIONS OF DOLARS OF STOCK they sold off last fall.

The Insiders cashed out ;ast fall and nursed the companys along for 12 months so they could not face charges of Insider Trading.

See the limitations of the law are 1 year.,

[ciabrat]

"The trillion dollar taxpayers bailout scheme is doomed to fail....wi­ll trigger Weimar hyperinflation immediately, will bring down the whole banking system...'­'

`However, ... , there is a Plan B. ... a three-step solution, which begins with bankruptcy reorganization, rather than hyperinflationary bailout. First, pass my Homeowners and Bank Protection Act (HBPA).

``Second, Congress, in coordination with the Fed, must establish a two-tiered credit system. The Fed must immediately increase short-term rates to 4 percent, to send a clear signal that the U.S. government is behind a strong dollar. At the same time, Congress, using its Constitutional authority, must issue trillions of dollars in low-interest credit for earmarked infrastructure projects, in the vital interest of the nation....­These kinds of projects should be financed through capital budgeting, authorized by Congress at 1-2 percent interest.'­'

``And at the same time, the United States, Russia, China and India must take the lead in convening a treaty conference to establish a new international financial system, based on fixed exchange rates, along the conceptual lines of what Franklin Roosevelt did in 1944 with the original Bretton Woods System. We can and must put the bankrupt current international financial system through bankruptcy reorganization, and launch, on a global scale, what I have proposed with the domestic capital investment in massive infrastruc­ture.''

I understand LaRouche is considered far out, but this may be a good time to consider the message independently of the messenger. Thoughts?

[pkscottx]

There is plenty of blame for this train wreck to go around.

Our current disaster was DECADES in the making and was built on the absurd notion that you can build a prosperous economy on a MOUNTAIN of debt. This corrupt Ponzi scheme was conducted with the collusion of the Fed, the Treasury, Congress, the financial institutions, and the economically illiterate people who promoted it and participated in it. There were such HUGE piles of nice sweaty money that everyone got a cut.

This mountain of debt was built on the back of the American Consumer and we are TAPPED OUT.

The banks that just jacked our credit card interest rates to 30% needs more juice and we have been squeezed dry. Nobody will loan the banks any money. No sane institution or investor will buy their toxic garbage assets for more than 5 cents on the dollar and the underlying value of the assets is still in freefall.

Now the "bankers" are going to CONFISCATE YOUR FUTURE EARNINGS using the force of law via TAXES.

You are being fitted for the yoke of economic SLAVERY to Corporate Fascists.

Remember,when GW said: "The most "efficient" form of government was a dictatorship"?

Instead of jockying to point the finger away from your Political Party of choice, you should be wondering if the stench of corruption blowing on the wind out of Washington is the rotting corpse of Democracy.

[AccountabilityGuy]

I have mixed feelings about the bailout, but the general media has created the Main St. versus Wall St. conflict. The approximately 40,000 workers who are losing their jobs as a result of the bank meltdown are also citizens of the United States -- most are regular folks trying to make a living. They may work in an urban area, but they also live in the suburbs, struggle with their mortgages, and property taxes. For all the provisions of the bail-out plan, the major sticking point shouldn't be executive compensation -- government intervention in this area is definitely the slippery slope.

Would anyone in the sports & entertainment industry feel that government intervention is required with their salaries? Athletes or actors making multi-millions of dollars, pushing up the cost of movie or sports tickets out of the reach of the average family. Should the government regulate the salary of Alex Rodriguez because the Yankees failed to win? Or should the government regulate the salary of Ben Affleck because his movies fail to generate income?

Market forces are the bedrock of capitalism in a free society. This the surest way to stiffle innovation and entrepreneurship.

[jimspy]

Can someone here please direct me to a concise counter-argument to the YouTube that claims that the root cause of this meltdown can be traced to the Carter and Clinton administrations, who sewed the seeds of "affordable housing for the poor"? I am a liberal (no, really, I am!) and I support Obama, and I would love to see everyone in the country in a nice house, but I am also a realist, and I know that some people will just never be able to afford a house. This YouTube claims that banks were basically forced by legislation to offer these low-rate, sub-prime mortgage deals to people of questionable credit, and that this legislation has its roots in the Clinton Administration. Please, I want to continue to blame the Repugs, don't burst my bubble!

[boophus]

PART ! : This is cover your butt time. The government did not force the banks to give loans. . The reason they gave loans to unqualified people is that interst rates were held artificially low by the Fed (not government regulated ) after 911 to stimulate the economy .They didn't raise it to pop a bubble because it was the only good sector in economy.. In fact house prices were increasing much faster than the underlying materials and labor costs. I lived in CA and it is one of the really hot spots that was going nuts. It was not poor people buying the biggest & most expensive homes. Lenders could buy CHEAP MONEY use to make RE loans for a profit. The bubble started growing and that drove prices up more and still interest stayed low when it should have went up to stop the bubble. Now comes the part that made the wall street mess because what came before was small potatos. Those loans were broken up and sold. There was buying as a bet that prices would continue up and profits could be made and buys based on idea that loans wouldn't be paid and they could foreclose , charge fees and realize profit that way and a myriad of other betting options. And they kept breaking the loans up and packaging the pieces in calculated risk packages.

[WestCoastTruth]

You may want to take a look at the following links. Very eye opening.

http://mises.org/story/2963

http://www.youtube.com/TheMouthPeace

Then check the facts for yourself.

[boophus]

PART 2 : Then suddenly housing reached a point where it just was too expensive by any stretch of imagination or by any little trick to make loans. And prices stagnated, then began to fall and and then suddenly people discovered that the adjustable rate or interest only or no documentation loans were bad news. Especially the adjustable rate loans. Then it fell apart as home values dropped below what homes were worth and payments were re-adjusted in some cases to an amount twice what they had been paying. So in California there are neighborhoods where many people walked away. And those neighborhoods and loan holders were not in the poorest economic brackets. We sold our house in 2002 for 289,000. A year later we were told it sold for 450,000. A year later an identical house sold for 545,000. I thought the 289000 was ridiculous.

This is my opinion based on what I have been reading for years. I am no economist but it seems obvious to pull money from places where it is earning poorly and put it into investments that are skyrocketing like RE. It was the leveraging games that really is the tangled mess.