Paulson and Bernanke are pushing a giant $700 Wall St. bail-out bill that the public hasn't even seen.
Using the very real threat of a systemic financial collapse, they are beginning to bully Congress into passing the bill quickly before the election recess.
But the "fix" is in. What little we know about this so far suggests that those who caused the mess will get off relatively unscathed.
First, they're talking about pushing through the largest bailout in history without any hearings. No time to debate the issues. Just ram it through. That says a lot by itself. Shock doctrine, anyone?
Sure, they will dress this who thing up with a few marginal reforms (like a cap on CEO pay for the banks that get bailed out), but that's a red herring a constricted discussion that leaves out any consideration of meaningful structural reforms.
Judging from what we've heard from Barney Frank, there will probably also be a debate over whether or not we should add a clause that taxes high-income people. That one will be interesting to watch closely, especially as it relates to the upcoming election, since it has the potential to reflect the differences between Obama and McCain's tax plans.
The players to watch for that subplot will be Senate Dems like Chuck Schumer and John Kerry. Will they stand by their man and close the private equity loophole that allows these fat cats to claim their profits should only be taxed at 15% -- capital gains instead of income? Or will they stand by the big donors to the DSCC?
Schumer, who has gotten Wall Street to cough up tons of dough for the DSCC, has in turn been the biggest obstacle to closing that loophole.
Thus it was no surprise to hear him on NPR this morning proclaiming that there will be no "Christmas tree" add-ons. Though the bonuses won't be as big this year, I'm sure Wall St. will have a happy holiday if he gets his way.
Without hearings, what little debate there will be over this onerous juggernaut will occur behind closed doors, especially in conference committee where House Dems like Frank will face down their colleagues in the Senate. If it gets tough for Schumer you can count on Paulson and Bernanke calling those who want more for the people who lost their houses and more regulatory concessions obstructionists who put the entire system at risk.
At the same time that they claim we have just one chance to get this right, with no second chances.
What gall. We're talking about the biggest bailout in history, with only modest reforms tacked on, and no plan B, C, D, etc.
What should we do?
At this point, there's a lot that could and should be pulled out and put on the table.
For one, we need to tell Congress that those who caused this mess need to pay.
How? Via a speculation tax. The whiners on Wall St. might call them crazy, but Congress should take the cost of repairing the system out of the hides of those who gained and gamed the system.
A modest fee currently exists on exchange transactions that is tied to the SEC's budget. It obviously has created little deterrent to "churning" and hyperspeculation. Instead of a few hundredths of a cent, Congress could raise the rate to at least a few cents per transaction, and put what the SEC doesn't take into the general revenue fund to help pay for all the bailouts.
Just as we use a gas tax to make those who use the highways more in effect pay more for highway repairs (a tax that could be raised like a tobacco tax, to curb our addiction to oil and create an investment fund for mass transit and renewable energy), so we need to put the burden on those who place the most risk into the financial system. Speculators. (Years ago, GWU law prof. Larry Mitchell suggested another way: tax short-term capital gains at a higher rate, so that speculators -- those who get in and out of stocks quickly rather than invest in the long run -- effectively pay more for their short-sightedness).
Together with higher margin requirements and regulations that bring unregulated financial instruments (derivatives) into a regulated exchange, a transaction tax would help curb hyperspeculation and the contagion of derivatives.
In addition, we could also consider separating the banks that actually make mortgage loans from the investment banks. Those who make the loans should have to hold onto them, rather than packaging them into securities that are passed around like hot potatoes, in effect making it nearly impossible for those who bear the risk to do their due diligence.
These are a few of the ideas that need more discussion and debate before Congress rams Paulson's package through.
For other ideas, see Rob Weissman's piece.