Four Reasons to Oppose the Bush-Obama Request for Another $350 Billion Bailout

Today, President Bush -- at the request of Barack Obama -- formally requested the next truckload of Wall Street bailout cash. I appeared on CNBC to discuss the request. Watch it here.

The question is whether Congress should agree to this request or not, and I am against it for four reasons that I mentioned on CNBC.

REASON 1: Treasury Says It Doesn't Need the Money

First and foremost, as the New York Times reports, "The first $350 billion in bailout money has been fully allocated and the Treasury says there is no urgent need for more." On top of this, the first $350 billion has been a complete disaster -- as the bailout's congressional oversight panel reports, there has been almost no transparency or even basic proof that the bailout is working to do anything other than subsidize bank consolidation and executive bonuses.

REASON 2: "New" Conditions Are Filled With Loopholes & Omissions

Second, it's not clear that the conditions Democrats are talking about placing on the second batch of money are strong enough -- or, in some cases, even real.

Rep. Barney Frank (D-MA) has put forward legislation that would impose some strings on the money -- and his legislation draws a nice comparison to the auto bailout. Essentially, he wants to impose some of the same restrictions on the money that conservatives demand on the auto bailout. And that's a damn good thing.

The problem is that his proposal still has some gaping loopholes. For example, the Washington Independent reports that while Frank's executive compensation language restricts bonuses, it will still allow executives to pay themselves absurd salaries. Additionally, while it's good that Frank wants to force some of the new bailout money to be used to help homeowners, that money needs to be accompanied with bankruptcy law reform (i.e. giving judges the power to renegotiate loans), so that the money isn't used to subsidize banks' bad loans and can be used in the most effective way that actually helps homeowners and the middle-class.

Of course, word today is that Frank is now backing off even his modest legislation, which leads us to reason 3.

REASON 3: Congress Still Abdicating Its Oversight Responsibilities

To my knowledge, neither Frank nor Senate Banking Committee chairman Chris Dodd (D-CT) has put forward bills that would legislatively mandate exactly how the new bailout money is used, or even seriously better transparency. Instead, they are telling us we should simply trust Obama to use the money more responsibly and effectively than Bush. Indeed, lawmakers are demanding a letter from Obama describing how he would use the money -- but by definition, a letter is non-binding.

Incredibly, we are expected to believe this will better guarantee transparency and effectiveness even though, as the New York Times reports, Dodd "acknowledged that without new legislation there would be nothing to guarantee that those plans would be followed." Arguably worse than Dodd's statement is the behavior of Frank. The Huffington Post today reports that "Frank introduced legislation at the end of last week that would have tied a number of strings to the second $350 billion in financial-industry bailout funds, but on Monday, he told fellow Democrats in a closed-door meeting that he wouldn't push for passage of his bill if President-elect Obama would give "his word" that he would implement major portions of his legislation."

Now, I certainly think Obama will do a better job than Bush in administering the bailout money - but this doesn't mean we should simply accept Congress once again rolling over, playing dead, and effectively delegating its power of the purse to the executive branch. We went down that road once before, and look where it got us. I mean, seriously - didn't Democrats get elected to Congress to be a Congress rather than a rubber stamp?

Additionally, if Congress doesn't play a much stronger role on this bill, it could politically weaken Obama's hand in taking on the financial industry as a whole. By passing the buck, Congress will put the bailout all on him - and he won't have a progressive legislature to play off of if/when he wants to use the bailout in a way that actually makes the financial industry uncomfortable. In other words, he'll be out there all on his own - which isn't good for anyone.

REASON 4: Nobody Has Explained Why This Is the Best Way to Spend $350 Billion

I said this during the original debate over the bailout bill, and I'll say it again: Nobody is explaining why spending another $350 billion on a Wall Street bailout is a better way to stabilize and stimulate the economy than, say, devoting that money to universal health care or a full employment program. Shouldn't that be the very first condition of this amount of money? Shouldn't someone have to make this argument? And isn't the fact that this case hasn't been made a major reason why polls show the American people still strongly oppose this bailout?

*******************

Let me say that in the upcoming negotiations over the bailout, some of this might change. For example, some of the loopholes may be eliminated, and lawmakers may step forward and actually legislate the use of the money, rather than simply giving it to the president.

But if everything stays the same -- if these circumstances stand -- then I see no reason for Congress to cut another blank check for $350 billion. There's going to be a huge amount of financial industry pressure to pass this, but progressives have to stand up to that. As George Bush once said, "There's an old saying in Tennessee -- I know it's in Texas, probably in Tennessee -- that says, fool me once, shame on -- shame on you. Fool me -- you can't get fooled again."

Comments

[mjc]

Well........, it looks like transparency lost and the big boys won. The Bank of America just got some obscene amount of money in a bailout. Maybe we can all go live in a bank, turn it into an apartment complex, and live happily everafter.

[mjc]

Ye gods, Mr. Sirota. I was all fired up to tell Congress to release the $350 billion into Barack Obama's hands, thinking this was part and parcel of a stimulus plan and a plan to aid homeowners caught in the mortgage crisis. Reading your blog certainly changed my mind. I've been relaxing my critical senses on Mr. Obama and his plans because some of what I think SHOULD be done IS being done, especially in the Cabinet choices. You've brought my focus back to its critical aperture.

[fromNina]

I Want My Bailout Money (on youtube), a new hip hop satire song by Michael Adams, editor of NaturalNews, perfectly explains the financial situation.
"I need another hit of my bailout money"

[yesivoteddem]

some will rob you with a six gun

and some with a fountain pen

--

but through this world you ramble

and through this world you roam.

you will never see an outlaw

put a family from their home.

----

The ballad of Pretty Boy Floyd

by Woody Guthrie

[yesivoteddem]

id rather see a morototium on payroll taxes under 100 grand.

that money would go straight into the economy.

[chocolatecity]

Why give it to the big banks. They just use it to buy smaller healthy banks, further monopolizing the financial sector. Give it to local banks and credit unions with the specific intent that these guys have to loan the money to small businesses, mortgage seekers, and folks seeking auto loans. It's time to give the little guys a chance.

[DuganS1]

"First and foremost, as the New York Times reports, "The first $350 billion in bailout money has been fully allocated and the Treasury says there is no urgent need for more." On top of this, the first $350 billion has been a complete disaster -- as the bailout's congressional oversight panel reports, there has been almost no transparency or even basic proof that the bailout is working to do anything other than subsidize bank consolidation and executive bonuses."

There are two comments above that are inaccurate. First, the treasury has asked for the rest of the money and that's been public for some days now. Second, there is plenty of evidence that the bailout is working. It's clear from credit spreads, Ted spread, LIBOR, the commercial paper market, etc. The executive bonus issue is just left wing propaganda. That's barely happened and what has happened is such a small percentage of the money that it's not worth talking about. Bank consolidation is actually important for recovery. It's best that the weakest institutions get taken over by the strongest one. This often happens during sector collapses - see the oil industry in the late 90s. Overall, the additional bailout money is extremely important as the capital lost from written off loans needs to be replaced with new capital, otherwise we find ourselves in a liquidity squeeze and death spiral.

[olephart]

Socialism becomes you.

[ProudMormon]

You libs should all be happy about the bailout. It singlehandedly caused Norm Coleman to lose/tie his election. He was up by 12+% before he voted for it, and immediately afterward plummeted by almost 10 percentage points. If he did the politically expedient thing and voted against it, he would have rolled to an easy victory.

[yesivoteddem]

oh I agree --
the media panic
it helped us Dems

[ProudLiberalDan]

Great post, David.

There is no need to rush this money. There should be a provision that no corporation gets any more money without a complete accounting of the money they've already gotten.

They money was supposed to get credit flowing. It didn't. Therefore it obviously went to improve bottom lines and secure bloated executive pay and bonuses.

I'd rather see $350 billion to establishing universal health care, not corporate bailouts.

I trust Obama with the money. But I don't truth the bankers and executives as far as I can throw them.

There is a principle involved here too. Congress is a co-equal branch of government. I am opposed to Congress abdicating its constitutional responsibility even if Jesus Christ or Buddha themselves were in charge of this money.

No blank checks for any President ever. If we've learned nothing from the last 8 years, can we at least have learned that. I don't want to exchange one blank check President for another one, even if he's one I largely agree with.

[edwcorey]

Several years ago I took up Chase on a credit card balance transfer that offered a fixed rate until it was paid off. My payments were timely, but yesterday I received my statement and my minimum payment had doubled and a $10 per month surcharge added--with no notice. When I called and asked about it, I was informed that I could opt out of the situation by accepting a three-percentage-point rate hike. The Chase rep maintained that this was all legal. I'm sure I'm not the only person this is happening to: the rep said other credit card companies are now doing it, too. Fortunately I can make the new payment, but the surcharge really made me mad. I want this all over the place.

[got2Bkidding]

I know what you mean.

I opened an account with WAMU a short time ago. I was(am) still in the zero percent intro period.
I got the changes to my account because of the Chase takeover last night.

I called the customer service number. Once I verified I was reading things right I asked to close my zero balance account. After being put on hold for several minutes, the young lady said I would have to write to an address, stating why I wanted to close my account as a result of these changes.

I informed her that I was not going to jump through hoops to close a credit card account. She tried to tell me that if I wanted to close my account as a result of the changes being made to it that I would have to write.

I asked "is this customer service?" "Yes" she replied. "I would like you to close my account now. Please." "But sir..." "Please, close my account, now". "Yes sir".

I understand closing the account will be a hit to my FICO. I'm going to have to deal with that, even if I don't think I should. But I am not going to carry a card that has entirely different rules and rates than what I signed up for.

[tbone99]

Unfortunately so many people are not able to negotiate because the cannot pay off the account balance.
Thats where they've got us by the balls with the fine print.

But didn't the congress just pass some kind of legislature in the past month recently prohibiting this kind of gouging?

[olephart]

Reasons to withhold the bailout monies? Mortgage brokers and banks knowingly or negligently wrote loans based on phony documentation, inflated appraisals and with terms that would embarrass a Mafia loan shark. Securities dealers bought these junk loans and in collusion with bond ratings agencies paid to obtain triple A ratings. They knowingly committed thousands of cases of fraud, misrepresentation and conspiracy by selling these junk bonds as AAA paper. Everyone to this point who handled these toxic time bombs may billions of dollars. When this massive fraud collapsed, no one would continue to do business with them because they're a bunch of crooks. The free market operated as it was supposed to at this point and every one of these institutions should have gone belly up, as did Lehman. Rather than investigating these institutions as criminal enterprises using the RICO Statues the Treasury came running with bags of taxpayer monies. Our Congress and at that time Presidential Candidates went along with the scam. No one would stand up and speak the truth. What little opposition there was primarily came from those who had enabled the fraud in the first place by deregulation.

Obama's incoming Treasury Secretary arranged the bailout of Bear Sterns. His chief economic advisor, Larry Summers, supported the repeal of Glass Steagall and the deregulation of derivatives trading. So much for change. The best thing at this point would be to get Elliot Spitzer in there with or without the hookers.

[tbone99]

These people need to account for the first $350 billion in detailed accounts . They need to show the progress they've made in unraveling the mortgage credit packages they threw together like dust in our eyes while they partied on.

Then we need a detailed account of how they plan to use this money.

And sorry, but these executives need to work for free until they get their homework done.
They're not paid by the hour , they're paid by the job!

[Edzero]

Someone in the beltway had better start clarifying what
is going on if you want the people on Main Street to
endorse what choices are being made.

The kool aid drinking zombies of the Bush years are
waking up so the same approach to government
will not be tolerated.

Yes, we can means the people can tell their employees
on the beltway that we aren't going to put up with it
any longer.

[harriscrl3]

Because it was not desginated for that purpose. It was desginated to unfreeze the credit market so I think that Obama's plan to use it for homeowners and small businesses is a step in the right direction. The credit market will not bounce back unless the housing crisis is addressed and unless the housing crisis is addressed the economy will not recover.

Carol

[Overd0g]

Because "universal care" gives stuff to people who didn't earn it.

[tbone99]

We all pay taxes a some time or another , and even more people could pay taxes if they were afforded the healthcare they need to function.

Health is the bottom line on which we create functioning people who can contribute to society.
Without them we lack the foundation of a productive society