We Were Punked

01/20/2009 05:12 am ET | Updated May 25, 2011
  • David Sirota Newspaper columnist, radio host (AM760), bestselling author

Hale "Bonddad" Stewart counters the argument I made on Rachel Maddow's MSNBC show this week and that I've been making in my columns and blog postings for the better part of the last three months. He says the American people weren't deceived on the Wall Street bailout; implies that handing over a trillion-dollar no-strings-attached blank check to the financial industry was perfectly appropriate; and explicitly states that "to say we were 'punked by Wall Street' flies in the face of every available fact on the crisis."

Oddly, Bonddad then goes on to prove - arguably better than anyone else to date - that we were, in fact, punked.

Bonddad spends most of his post telling us that banking profits are down, noting that "financial stocks are down almost 70% since the summer of 2007." No argument there from me, or anyone else. He creates a straw man by suggesting that many people are claiming there was no "serious problem with the financial system that needed fixing" - nobody, not me, not even the authors of a controversial Minneapolis Fed report, claim there isn't a real financial problem. He then goes on to note that the Federal Reserve Bank's Beige Book has been saying that credit conditions were somewhat tightening before the bailout and - here's the most important part - that "loan demand was decreasing." Again, no argument there from me, or anyone else.

But that's the whole point - Americans were told we needed to give a trillion dollars of taxpayer cash, no strings attached, to Wall Street, not because huge banks saw their profit margins cut, not because financial shareholders saw their stocks lose value, but because banks had allegedly completely stopped lending to each other and to other businesses. Politicians, reporters and financial executives made the latter argument - and not the former - because they knew that while there would probably be opposition to any bailout of the size being proposed, there would be revolution-in-the-street-type outrage had they admitted the bailout was needed - and specifically structured - to preserve bank profits and the wealth of financial industry shareholders.

But as the Federal Reserve's own data shows that latter argument claiming lending had seized is simply not substantiated by fact. Indeed, nobody has been able to factually refute the very simple statement by Celent's Octavio Marenzi who said the claims by Henry Paulson and Ben Bernanke about a full-on, apocalyptic credit crisis "are flatly contradicted by the data provided by the very organizations they lead."

Now, this is not to say there hasn't been any problem of tightening credit. Nobody's saying that, and certainly not me. What I and other bailout opponents have been saying is that those who backed the bailout in its current form "were using an admittedly real [credit] problem to manufacture the perception of a full-on earth-shattering crisis." That is, they sensationalized a real problem to create the belief that if we didn't do something unfathomably (and irresponsibly) unprecedented, and without any oversight whatsoever, the world would end. Sound familiar? Of course it does. That's what happened in the lead up to the Iraq War - government leaders and the media seized on the very real problem of Saddam Hussein and sensationalized it into an "imminent threat" that required unprecedentedly destructive action.

Bonddad proves that it's the real economy that needed - and needs - the most help, not just the financial industry. Read through his post and notice how many times the stuff about decreasing loan demand is mentioned - that's it right there. Because the real economy is in crisis, loans are being sought a lot less - that is, businesses aren't expanding, they are contracting, and thus many are not looking for new loans to finance investments; and individuals aren't looking as much for new loans either. Put another way, just because demand for loans has decreased, doesn't mean loans are completely unavailable.

As the Celent report found, "overall U.S. bank lending is at its highest level ever, U.S. commercial bank lending is at record highs and growing particularly fast since May 2007...overall interbank lending is up 22 percent [and] bank lending for real estate reached a record level in October 2008." Those claims are backed up by both the Minneapolis Fed report and the NFIB report.

Celent guesses that what's going on is that lawmakers are likely "taking the situation of a handful of institutions and generalizing that to the market as a whole, incorrectly." That makes some sense, if you understand how Washington works. When the profits of huge campaign contributors like the Citigroups and the AIGs decrease, the Beltway (not surprisingly) prioritizes helping those campaign contributors preserve those profits, and therefore rationalizes handouts to those behemoths by making lots of generalizations - even if, for instance, the data at the time of the bailout suggested that the rush away from such behemoths was helping local banks. In D.C. - as we all know - the little guy doesn't matter, only the wallets of the big fat cats do.

So we were punked not by those who said there was a real credit problem - there certainly was and is a credit problem, though it's only one of many problems, and it certainly isn't a problem that justified spending a trillion dollars of no-strings-attached money in less than two weeks of deliberation. We were punked by those politicians and pundits who said what we had to do to fix the problem was not to both inject capital into the real economy (spending on infrastructure, health care, unemployment benefits, mortgage relief, etc.) and target reasonable amounts of well-overseen taxpayer cash to the specific banking sectors that required immediate aid, but instead to exclusively throw an ungodly amount of unregulated money at Wall Street while completely ignoring the real economy, and more specifically, to throw that ungodly amount of money at Wall Street with absolutely no strings attached.

That argument was not backed up by fact. It was a lie - and a lie with a motive: to make sure as much taxpayer cash as possible was given to one of the largest segments of campaign contributors, and that that cash could be used to subsidize executive pay, shareholder value, shareholder dividends bank consolidation and financial industry profits. And to date, nobody has been able to answer really simple questions that make this point as clear as possible.

As just one example, consider the fact that when aggregating what both the Treasury and Federal Reserve bank has have done, taxpayers have allocated $8 trillion to the financial industry. In a country where 18,000 people die each year because they lack health insurance (that's six 9/11's every single year), most believe it would cost about $75 billion to $100 billion a year for universal health care. So just to account for critics, let's say it costs $200 billion. How does giving $8 trillion to the financial industry save more lives, better help the economy (whose fastest growing sector is health care) and better benefit society than using that $8 trillion to finance universal health care for the next 40 years and save 720,000 American lives?* The fact that Congress didn't even ask such a simple question and simply allowed that $8 trillion to be allocated to its campaign benefactors on Wall Street means we were punked in a historic way. Or, to use Bonddad's own phrase, it means that to say we weren't punked flies in the face of every available fact.

The path forward from here is pretty obvious. As I noted in an earlier post, there are three steps to take:

1. We have to pressure, cajole, lambaste and downright humiliate Wall Street stooges on Capitol Hill who claim nothing can be done to reform the bailout and actually start working to fix the economy.

2. Before releasing the next installment of bailout money for Wall Street, Congress can add strings to that money - for instance, making sure that it is subsequently used to increase lending and not to subsidize bank profits, shareholder dividends and executive pay. If those strings aren't attached - and if the Treasury Department continues to refuse to give federal bailout regulators like Elizabeth Warren access to basic information - Congress should refuse to release the next installment of bailout money.

3. Congress can allocate some of the unspent bailout money to a robust economic recovery package focused on job-creating infrastructure and health care priorities - and Congress can pass that economic recovery package right now, rather than waiting for the next president.

* $200 billion a year multiplied by 40 years is $8 trillion dollars. 40 years multiplied by 18,000 lives a year is 720,000 lives.