The last week has seen a tectonic shift in American politics and government. Those of us who opposed the $700 billion bailout have been proved correct, as the entire political, academic and financial Establishment has said what we were saying all along: the scheme to buy mortgage-backed assets is a giveaway to Wall Street, not a solution to a credit crisis. And as I show in my new newspaper column today, maybe that humiliating mistake will -- finally -- force our government to actually listen to those of us (i.e. the majority of the country) that have always opposed Henry Paulson's crony communism.
To start, let me just say I'm a bit bothered by the public ass-covering that has been going on by those who pushed the bailout in the first place. As just one example, Paul Krugman -- who I remain a big fan of -- supported the bailout, providing the key progressive cover necessary to pass the bailout. Now he's out there - first on Rachel Maddow's show, now in his column today -- basically trying to portray himself as a longtime bailout opponent. While I'm glad he's come around, the whole historical revision is gross and disingenuous. It's reminiscent of how millions told pollsters they actually voted for McGovern as soon as Watergate blew up, or -- more recently -- how lawmakers who made speeches questioning the Iraq authorization bill but then voted for it insisted later that they really opposed the war.
Everyone from Krugman, to David Brooks, to Tom Friedman to Doris Kearns Goodwin, to both presidential candidates, to Steve Pearlstein and his now-laughable Pulitzer prize - the entire political world and punditocracy that berated bailout opponents as stupid, irresponsible, unpatriotic Luddites -- has egg on its face. They panicked and bought into Paulson's "somebody do something!" fearmongering that claimed buying bad mortgages was the way to rescue America.
But it's not.
As those of us who opposed the bailout said, the way to deal with a credit crisis is to actually, ya know, deal with a credit crisis, and not use it to enrich Wall Street executives. And the way to do that is to recapitalize banks in exchange for ownership stakes.
As I show in the column, if you exchange taxpayer cash for bad mortgages, all you are doing is making mortgages into cash, you aren't actually increasing bank's total capital -- and in not doing that, you aren't adding to their lending capabilities. If, on the other hand, you leave mortgages on banks' books and use taxpayer cash to buy bank stock, you add capital to banks' books, and therefore expand their lending ability -- thus aggressively addressing the credit freeze, while also giving taxpayers an ownership stake in any future bank profits.
The bailout bill is designed to let Paulson buy bad mortgages -- a move that wouldn't address the credit crisis, but would make his pals on Wall Street very happy because they wouldn't have to give up any future profits or succumb to a government-mandated management house cleaning (thus the term "bailout"). The legislation refused to mandate the recapitalization plan -- which is a major reason the bill should have been voted down. Though the bill technically allows Paulson to pursue the recapitalization plan, it doesn't force him to (in fact, his ability to do so is gray -- if it is allowed at all, it is only allowed because the bill doesn't outlaw it) -- and trusting (rather than mandating) a former Goldman Sachs executive and current Bush official to make a responsible decision with taxpayers' interest in mind is idiotic, because now -- with the bill vesting all authority in Paulson -- we are at the mercy of this autocrat's whims. And because of that, we've already lost precious time.
So what does that mean for us? What can we do now? As I see it, two things:
1. Demand Congress go back to the drawing board and amend the bailout bill to make the recapitalization plan mandatory. Contact your member of Congress and tell them to reject the quiet efforts to simply expand the price tag of the bailout, and instead force the Treasury Department to pursue the recapitalization plan and scrap the mortgage-buying scheme.
2. In the event that Paulson starts buying mortgages, demand Congress convene hearings that ask Paulson to publicly explain why he refuses to pursue the recapitalization plan. I've been hearing that these kind of hearings are in the works -- but at the very least, we need to force King Henry to tell us why he thinks giving away $700 billion to his friends on Wall Street is a better way to deal with the situation than buying bank stock.
Finally, I'm hopeful that as this economic turbulence inevitably increases, the progressive movement -- and the country as a while -- listens more to the experts like (to name a few) Dean Baker, Rob Johnson, Andy Stern and George Soros who have been right all along about the failure of this bailout, rather than only listening to those who either led us into this disaster (Democratic and Republican deregulators, Wall Street execs) or were apologists for or proponents of a bailout bill that is aimed at making this situation worse (Henry Paulson, Democratic and Republican congressional leaders, most pundits, and a whole slew of progressive economists).
In short, I'm hopeful that we will have finally learned the lesson we should have learned during the lead-up to and aftermath of the Iraq invasion -- that continuing to put our blind trust and faith in those who advocated or provided cover for a mistake is, unto itself, the biggest mistake of all, and that we should be listening to those who have a proven track record of being right. Like millions of Americans, I've lost a big chunk of my life's savings (about 15 percent) thanks to political parties, government officials and a progressive movement that has listened to the same old voices. It's time for new voices -- and a responsible policy.
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