A friend of mine once mentioned as we were nursing a couple of beers that he used to work for the Circus.
"Really?" I asked. "Doing what? Swallowing swords?"
"No, cleaning up after the elephants."
I guess somebody has to do it.
Now, after this eight-year freak show of cronyism and corruption, war and incompetence, there's surely going to be a lot of cleaning up to do when the elephants leave the center ring.
Despite President Bush's gracious welcome, the mess they will leave behind in the back rooms just keeps piling up higher and higher every day.
E.g. -- just this morning the Washington Post pointed out that taxpayers are being left with an estimated $140 billion obligation to the Wall St. banks. That's in addition to the $700 billion handed over the table.
As the Post describes it, "almost every tax expert" they talked to agrees that Treasury didn't even have the authority to issue the cryptic 5-sentence notice, which changes Section 382 of the tax code.
But they went ahead and did it anyway, no doubt expecting that the mess will be sorted out when they're already gone.
Lest you think that's not so bad, don't forget that there's another loophole that some of these characters have personally profited from -- a "fascinating quirk in tax law": Wealthy political appointees who put their assets into blind trusts needn't pay capital gains taxes on any sales. Thus, we learn from Goldman Sachs historian Charles Ellis that Treasury Secretary Paulson saved as much as $200 million from this capital gains tax break when he so "reluctantly" gave up his lucrative position at Goldman Sachs to come to Washington.
Yes, call that one the "Government Sachs" loophole, since no doubt some of the other former Goldman partners that currently serve at Treasury have also taken advantage of the rule, perhaps including Neel Kashkari, Treasury's "bailout czar."
Goldman, of course, also received a "backdoor bailout" when its portion of the $37 billion that investment banks held in AIG came out of the rescue package, making the AIG bailout, in effect, "a pass-through from taxpayers to the counterparties" -- i.e. Goldman Sachs and other banks. (According to the Columbia Journalism Review and Bloomberg, Paulson's successor at Goldman, Lloyd Blankfein, was the only CEO at a 9/15 meeting at the NY Fed when AIG's troubles were discussed.)
No doubt whoever takes over for Paulson and the rest of "Government Sachs" will have a labyrinth of such arrangements to sort through. And with threats being made that any attempt to unwind the deals could tank the entire economy (a nice game of political blackmail), there's little chance that there will be any reversals if the loopholes are closed.
Fine. Don't look back. Say what you want about the Obama campaign taking in enormous contributions from Wall Street, it will still have to prove that it is breaking from the past, and willing to clean up the mess that these elephants are leaving behind.
That means doing a lot more than closing the "Wells Fargo" and "Government Sachs" loopholes. Here are some ideas:
* Speculation Tax. (This was actually in the original Wall Street bailout draft that got shot down. It's one of the few good provisions that should be brought back.)
In fact we already have such a tax, it's just that like all the other taxes on the rich, it's been reduced to near invisibility. Back in January 2002, President Bush signed the Investor and Capital Markets Fee Relief Act (Public Law 107-123) which reduced transaction fees to an infinitesimal amount.
Transaction fees not only have the potential to generate a decent amount of needed revenues, but they could also serve as a modest deterrent against hyper-speculation and "short-termism." A modest rate -- say $0.10 on issues traded on the NYSE -- would alone generate almost $70 billion/yr (using 2007 volume figures). If you add in the other exchanges (and force all derivatives trades to occur in regulated exchanges), and subtract the amount of trades that might be deterred by so modest a fee, you'd probably still get well over $100 billion per year.
The specific amount isn't as important as the principle: we tax gasoline so that those who drive the most pay more for highway repairs, etc. In a similar manner we should be taxing those who inject the most risk into the system -- those who churn stocks rather than make long-term productive investments.
* Another thing that's been talked about, is giving taxpayers the same deal that Warren Buffett gets when he negotiates with banks seeking an additional injection of capital. Taxpayers should automatically get voting stock any time we are forced to bail a company out. In addition, certain other reforms should be automatic, including caps on executive compensation and the appointment of a public director to the company's board, as law professor Christopher Stone once proposed.
These are minimum concessions that those asking for taxpayer bailouts should have to make, along with other sector-specific reforms (e.g. accelerated production of plug-in or hybrid vehicles in the case of the auto industry).
The change we need will be great, and we finally have a leader with the intelligence to recognize that fact, and hopefully a willingness to break from the powerful corporate lobbyists that constitute the "permanent government" in Washington.
As economist Robert Kuttner put it the other day, the magnitude of the current crisis confronts president-elect Obama with a choice/opportunity: he can either settle for more incremental reforms and risk becoming another Hoover, or he can make bold changes that transcend expectations stepping out of the mess he inherits with an historic set of programs as significant as those created by FDR.