When Congress debated the TARP last fall, the political elites insisted that the bill must be passed immediately or the economy would collapse. For example, Federal Reserve Board President Ben Bernanke told Congress that the commercial paper market was shutting down, which meant that the country's largest companies would soon be unable to meet their payrolls and pay other bills. (He neglected to mention that the Fed could single-handedly support the commercial paper market by directly buying commercial paper. Bernanke took steps to begin purchasing commercial paper the weekend after Congress voted.)
Under this pressure, Congress didn't take the time to ensure that the country would share in the upside from bailing out the banks. It didn't put in restrictions that ensured that bank executives would not get huge bonuses as the economy continued to sink. Nor did it impose any conditions that would curb the speculative excesses that fueled the bubble and led to the disaster.
The political elites said that the banks needed the money right away, and Congress buckled under the pressure. After all, no one wants to be responsible for the collapsing the economy. So, the banks got the blank check they needed to ensure that they would be largely protected from economic maelstrom that they had created.
Since the TARP escapade worked so well, the Wall Street gang is now trying another round of hostage taking, possibly for even bigger stakes. This time the plan is go after Social Security and Medicare. The Wall Street crew knows that members of Congress are not likely to vote to gut these two hugely popular programs under normal circumstances. These programs are essential to the economic well being of tens of millions of retirees, disabled workers, and their families. In fact, these programs are now more important than ever, since the collapse of the housing bubble has destroyed most of the savings of middle-income families.
Under normal circumstances, members of Congress who voted to cut these programs would be looking to an early retirement: hence the hostage-taking route. The plan is to hold up legislation for raising the debt ceiling unless a provision is included for establishing a commission for the purpose of cutting future deficits. This commission in turn would be stacked with people who want to cut Social Security and Medicare.
The bill also provides that the commission's report to Congress would be fast-tracked so that it would not be subject to normal procedures. It would not be subject to the same debate or amendment process as other bills. Finally, the commission would issue its report after the November 2010 election, with a vote required before the end of the year. This means that people who were just voted out of office would be able to decide the future of Social Security and Medicare.
The lead culprits in this venture are Senators Kent Conrad and Judd Gregg. The latter is best known for his brief stint as President Obama's Commerce Secretary designate before he realized this his deeply-held convictions required him to decline the position that he had previously sought. Another leading proponent of this measure is the foundation financed by Peter Peterson, the Commerce Secretary under Richard Nixon who is best known for pocketing tens of millions of dollars through the investment fund manager's tax break.
The country got suckered by the hostage-taking tactics used to pass the TARP. But, we don't have to get fooled again. It would be disastrous to create a situation in which the country could not legally finance its debt, but the Peter Peterson Wall Street gang stands to lose much more in this story than the rest of us. If they want to put a gun to their head and threaten to pull the trigger, we should tell them to go ahead and shoot.
We have an elected Congress. If Peterson, Conrad and Gregg want to bring their ideas to be debated, we have the forum. If they have problem with democracy; they can look for a dictatorship somewhere.