THE BLOG
10/26/2008 05:12 am ET | Updated May 25, 2011

Reject D.C.'s Princess Leia Message - This Bailout Is NOT Our Only Hope

Congress, the presidential campaigns and the national media are all espousing what we might call the Princess Leah message. "Help me Obi-Wan Kenobi, you're my only hope," Leah pleaded - and its the same thing our ruling class is saying. Help us taxpayers, bailing us out with no strings attached is the economy's only hope.

But is it? Last I checked, the Treasury Department pushing the plan is on the record acknowledging that it made up the $700 billion number, not basing it on any data or substantive plan at all. In fact, the only substantive plan I've seen is the one put forward by James Galbraith, one of the most respected economists in the country.

Under the heading "A Bailout We Don't Need," the University of Texas professor takes to the Washington Post today to outline an alternative economic rescue package - one that doesn't involve handing over almost a trillion dollars to the corporate campaign contributors who created this crisis in the first place.

Here are some excerpts:

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund -- a cosmetic gesture -- and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary...Review the situation in three months, when Congress comes back...

[The housing price crisis] could be resolved in three years, rather than 10, by a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished. Set it up like a draft board in each community, under federal guidelines, and get to work...

Reenact Richard Nixon's great idea: federal revenue sharing. States and localities should get the funds to plug their revenue gaps and maintain real public spending, per capita, for the next three to five years. Also, enact the National Infrastructure Bank, making bond revenue available in a revolving fund for capital improvements...

Here's another problem: the wealth loss to near-retirees and the elderly from a declining stock market as things shake out. How about taking care of this, with rough justice, through a supplement to Social Security? If you need a revenue source, impose a turnover tax on stocks.

A while back, Barack Obama listed Galbraith as one of his economic advisers. Sadly, Galbraith was left out of the emergency meeting Obama convened about the crisis. Evidently, the Illinois senator believed it was more important to have people who created the crisis like Citigroup's Bob Rubin nearby than an expert like Galbraith who has been sounding the alarm for years - and who has a rational plan to get us out of this mess.

But just in case you actually believed Washington's Princess Leah message of desperation - that the $700 billion bailout is our only hope - think again. There are plenty of other ways to address this challenge.

The problem, of course, is that this isn't about the American economy. It's about disaster capitalism and enriching the people who engineered this crisis to begin with. Bush (ie. Mr. 19 Percent) is the Obi-Wan Kenobi of the shock doctrine, both parties in Congress who are helping him push this bailout are akin to Darth Vader - and the circle is now complete. When those legislators capitulated to him on the Patriot Act and the Iraq War back in the post-9/11 fearmongering days, they were but the learner. Now, sadly, they are the master.

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