The Bush Bail-Out -- We Have Been Here Before

** By John Atlas and Peter Dreier **

We've been here before -- in the 1930s Depression, when the entire economy collapsed, and in the 1980s, when the savings-and-loan industry imploded. Both times, citizens demanded that the federal government do something to rescue the economy. In the Depression, President Roosevelt and Congress came up with bold plans to save capitalism and humanize it - the Works Progress Administration, the minimum wage, Social Security, and regulations to protect depositors and to keep banks from irresponsible practices. In the 1980s, President George H. W. Bush and Congress set up a bail-out agency, the Resolution Trust Corporation (RTC), that put the corporate foxes in charge of the financial chicken coop. We served on the RTC advisory committee and watched in horror as the RTC sold off the assets of failed banks to politically-connected developers at fire sale prices.

In response to the current economic crisis, President George W. Bush -- whose misguided policies triggered the Wall Street meltdown in the first place -- has shown no inclination to be bold or to look out for the needs of ordinary Americans worried about losing their jobs, their homes, their health care, and their retirement savings.

The Bush bail-out plan has triggered lots of outrage on the blogosphere and talk show circuit, and skepticism among some Congressional Democrats and editorial writers. But given the magnitude of the crisis, and the proposed corporate give-away, where are the protests? As we know from history, anger and frustration at the bottom takes time to bubble up.

But a number of liberal activist groups and think tanks -- including ACORN, US Action, MoveOn , the AFL-CIO, SEIU, the Steelworkers Union, the American Federation of Teachers, the Center for American Progress, the Campaign for America's Future, and others -- have already taken the lead, formulating a progressive alternative to Bush's plan and urging the Democrats in Congress to show some backbone in standing up to the White House. On Tuesday, for example, ACORN sponsored protests at Federal Reserve banks and financial institutions in 40 cities to protest the failure of the Bush administration and the Federal Reserve to include lifelines for American homeowners facing foreclosures in its big bank bailout bill.

Every American will be effected in some way by the current banking meltdown, the resulting economic crisis (including major lay-offs), and the huge bail-out now under review. We should be asking two questions: Who does the bail-out help? What reforms are needed to make sure this doesn't happen again?

This is the worst economic crisis we've witnessed since the Depression, but most Americans seem paralyzed by confusion and inertia. This is exactly what happened in the 1930s. When the stock market crashed in October 1929, most Americans were in shock. When they got laid off and couldn't find work, or were evicted from their homes, or couldn't afford to feed their children, they initially blamed themselves, or were simply too dazed to act.

At first, it was only a handful of small groups -- most unions and community groups, some veterans groups, and some farmers groups -- who tried to mobilize people politically. Labor unions organized strikes and protests demanding that the government do something. Unemployed workers, relief recipients, unpaid schoolteachers, and housewives organized demonstrations. President Herbert Hoover, a Republican conservative who believed that the federal government shouldn't interfere with economic affairs, watched as things went from bad to worse. During his 1932 campaign for the White House, Franklin D. Roosevelt ran on a platform of "change," but he offered few specifics about what he intended to do to fix the economic chaos engulfing America. FDR won because he wasn't Herbert Hoover. But once Roosevelt took office, he became bolder, helped along by protests in the streets demanding action.

Sound familar? Like Herbert Hoover, President George W. Bush has been a disaster, presiding over an economic free fall that includes high unemployment, huge deficits, a growing gap between the rich and everyone else, an increase in poverty, Katrina, and negligent financial regulation policies. The Republicans, including John McCain, have lost all their credibility for managing the economy. It was their philosophy and their policies that got us into the current mess.

Only after Treasury Secretary Henry Paulson and Fed Chair Ben Bernacke insisted that Bush act did the President agree to try to rescue the economy from even deeper disaster. But what is their plan really about? Although the details are still being debated, the outline of Bush's plan is clear. The federal government will buy up tainted or rotten assets from financial firms and then resell them to private investors at a later date, hopefully after the value goes up. The plan would give Paulson a blank check -- $2,333 for every man, woman, and child -- to buy and sell assets without further approval of Congress. Paulson is the former head of GS, a company that spurred the growth of exotic financial products that helped get us into the current mess in the first place. Like the RTC 20 years ago, the fox is in charge of the chicken coop.

The Bush bail-out is a corporate give-away, with no quid-pro-quos requiring companies to act responsibly in the future, limit outrageous executive compensation, or help ordinary homeowners to keep their homes. For example, Goldman Sachs recently paid out $16.5 billion in year-end bonuses to its employees. That worked out to over $620,000 per employee. The Bush plan will give the administration a $700 billion check with no strings attached, which they'll hand over to the Wall Street firms that got us into this mess.

The Democrats, led by Rep. Barney Frank, chair of the House Financial Services committee, are under enormous pressure to go along with the Bush/Paulson/Bernacke plan. The Dems have insisted that they want some changes in the Republican proposal but they don't want to look like they are getting in the way of an emergency response to the deepening crisis. The chain of events is happening so fast that its difficult to evaluate what Bush has proposed. The media aren't helping with its usual "on the one hand/on the other hand" reporting. Most articles offer average Americans little guidance about how the Bush plan will help or hinder their jobs, communities, and families.

The powers-that-be have a stake in making the economic crisis seem so complex and inscrutible that it defies understanding. That way, they get to set the terms of the debate, leaving ordinary Americans on the sidelines. But this crisis is too important to leave to the corporate big-wigs and their GOP allies that got us into the mess in the first place. In fact, the current economic crisis is a real "teaching moment." It's like the story of the emperor's new clothes, laying bare the underlying realities of Bush's misguided economic policies for the past eight years.

But the Democrats shouldn't cave in to pressure from Wall Street and their Republican allies to support just any rescue plan. They should learn important lessons from the misguided S&L bail-out during the late 1980s and early 1990s.

Like the current Wall Street meltdown, the S&L crisis resulted from the federal government's deregulation of the industry. Under pressure from the S&L lobby, Congress removed restrictions on the lending practices of S&Ls, which had been originally created to provide homeownership to families with modest means.

The industry, like Charles Keating's Lincoln Savings, had balked at constraints on the S&Ls' ability to compete with conventional banks engaged in commercial lending. They got Congress to change the rules, including lifting the lid on interest rates. This gave S&Ls, whose deposits were insured up to $100,000, a green light to engage in high-risk lending. They began a decade-long orgy of real-estate speculation, mismanagement, and fraud. Banks and S&Ls gobbled each other up and made loans to finance shopping malls, golf courses, office buildings and condo projects that had no logic other than a quick-buck profit. When the dust settled in the late 1980s, about a thousand S&Ls and banks (including Lincoln) had gone under, billions of dollars of commercial loans were rendered useless and the federal government was left to bail out the depositors whose money the speculators had looted. But the S&L executives knew that, should their companies fail, their depositors would be protected by federal insurance. The S&Ls executives also paid themselves excessive salaries -- living off the gravy train until it crashed.

Because both the Democrats and Republicans in Congress had close ties with the S&Ls -- including campaign contributions from S&L executives -- neither party was interested making the corruption scandal a public issue. But by 1989, the magnitude of the financial crisis -- the large number of S&Ls threatened with bankruptcy -- couldn't be hidden. Leaders in Congress and President George H.W. Bush abruptly announced that the taxpayers must bail out a bankrupt industry.

Keating alone bilked more than 21,000 investors, including many senior citizens, who lost $285 million life savings. His attempts to escape regulatory sanctions led to the Keating Five political scandal, in which five U.S. senators, including Republican John McCain of Arizona, were implicated in an influence-peddling scheme to assist Keating. Major law firms, accounting firms, and investment bankers were also implicated in the scandal.

To solve the crisis, Congress created the Resolution Trust Corporation to close or reorganize more than 700 institutions holding assets of nearly $400 billion by seizing the assets of the nearly bankrupt savings and loans and then reselling them to recoup the taxpayers cost. Wealthy bankers and investors who had benefited from the deregulation that caused the S&L crisis in the first place quickly took advantage of the "fire sale" sponsored by the RTC. Politically-connected investors snap up foreclosed properties at RTC auctions at bargain-basement prices. The S&L cleanup cost American taxpayers an estimated $124 billion. The best selling author, Martin Mayer, correctly titled his book about the S & L crisis, The Greatest-Ever Bank Robbery.

The current Wall Street crisis is even worse than the S&L boondoggle. And Bush's corporate welfare plan is similar to his father's S&L bail-out.

"Secretary Paulson's plan calls for spending a trillion dollars of taxpayer funds to bailout out his former colleagues on Wall Street, but does not devote a single penny to rescue American homeowners who were victimized by the predatory lending of these same institutions," said Maude Hurd, president of ACORN. "We urge Congress to protect the millions of American homeowners facing foreclosure before they bailout the shareholders of big banks."

At its rallies around the country this week, ACORN isn't simply protesting against a corporate give away. It is protesting for a rescue plan that protects ordinary families. ACORN's plan for rescuing Main Street, not just bailing out Wall Street, includes the following planks:

-Bankruptcy shelter for homeowners. Congress should amend the bankruptcy bill to allow homeowners to restructure their home mortgages in bankruptcy and save their homes.

-Mandatory restructured mortgages for victims of predatory loans in danger of losing their homes. The modification program recently enacted by the FDIC and the depression-era Home Ownership Loan Corporation should be the models.

-Outlaw predatory lending practices and cap at 36 percent the interest rate on small loans charged by payday lenders and other predators.

-Expand unemployment benefits, food stamps, and heating assistance for families in need.

-Extend the Community Reinvestment Act (CRA) to investment banks and insurance companies. Any financial institution that benefits from the bailout must in return provide public benefit by investing in low- and moderate-income communities under the provisions of the CRA.

We suggest that, in addition, the plan require every executive at a firm that accepts the public's bailout money to agree to a salary cap; a good rule of thumb would be no more than ten times what the lowest paid person in their firm earns, to a maximum of $1 million per year.

At a time of deepening economic crisis brought on by misguided federal policies and irresponsible corporate behavior, it seems that even the very rich should have to sacrifice a bit for the good of the country.

-----
John Atlas and Peter Dreier were appointed by President Bill Clinton to the RTC advisory committee. John Atlas is founder and president of the New Jersey-based National Housing Institute, a think tank that publishes Shelterforce magazine and Rooflines. He is writing a book on poverty, democracy, and progressive politics, focusing on the work of ACORN. Peter Dreier is professor of politics and director of the Urban & Environmental Policy program at Occidental College. He is coauthor of several books, including Place Matters: Metropolitics for the 21st Century and The Next Los Angeles: The Struggle for a Livable City. He is a member of the NHI board and chair of the Horizon Institute, a Los Angeles-based think tank focusing on the proper role of government in economic affairs.

Comments

[Pappadave]

Below is a DIRECT QUOTE of Representative Barney Frank from his opening remarks at hearings to consider a Bush proposal to increase government oversight of Fannie Mae and Freddy Mac. Now WHO'S been asleep at the switch again??

"I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis.
{snip}

Now, we have got a system that I think has worked well to help housing. The high cost of housing is one of the great social bombs of this country. I would rank it second to the inadequacy of our health delivery system as a problem that afflicts many, many Americans.
{snip}

Fannie Mae and Freddie Mac have played a useful role in helping make housing more affordable, both in general through leveraging the mortgage market, and in particular, they have a mission that this Congress has given them in return for some of the arrangements which are of benefit to them to focus on affordable housing, and that is what I am concerned about.
{snip}

The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially. {snip}

[HyperInfluential]

This article is very important because a lot of first-time voters have absolutely no memory of the S&L scandal, being just kids when it happened. The thieves have always relied on our short memories to con us over and over, but now we have the Googles and Tubes to catch them! Hooray!

[bronceye]

Oedipus is determined to out do George1. He redid Iraq, S&L(his brother made out good on that one). Will he send underarmed, undersupplied troops to Somalia just a few weeks before the end of his term?

[GiggidyGeshmoygen]

haven't we heard all of this somewhere before ?

about 5-6 years ago ?

9/11, al-qaida, iraq, wmds, mushroom clouds, imminent threat ?

must hurry, must do it now or the sky will fall ?

we'll blame it on you and call you unamerican if you don't cooperate -

oh yea, now i remember..­. it was the iraq war / war on terrorism / "homeland security" debacle -

created and sponsored by, and for the sole benefit of, a group of geo-political neocon terrorists (geo-neos) who seized control of the american government -

the only question to ask yourself is this -

do you want to give away control over your children's and your chidren's children's future or do you want to give their future back them ?

the question is simple,

the choice is clear

[Retrofuturistic]

You said: "...where are the protests? As we know from history, anger and frustration at the bottom takes time to bubble up. "

Well, guess what? Things have been "bubbling up" for a long time, but it's pretty hard to have a revolution if the press doesn't report demonstrations, if the newspaper doesn't say when and where the Boston Tea Party will be held, or if the government is spying on all of us. What is the avenue for dissent when the press is bought, the Congress is bought and does not represent the people, and the Judicial Dept. is politicized?

Many of us have been writing letters, posting on blogs, volunteering, contributing to causes, but nothing happens; nothing changes. Books have been written. A few courageous people have said things in the corrupt mainstream media. But nothing changes.

Meanwhile, the Bush administration continues to rape the economy, the Republicans tell outright lies in the press, they still act like they want to bomb Iran, and no one does anything because they're all rolling in that corporate and Christian fascist money. Over two million people sign petitions for impeachment and no one does anything. Meanwhile, people who have done things "right" are on the verge of losing their retirement and their inheritances and no one does anything.

NOW can we impeach Bush and Cheney?

[Pappadave]

No, you can't. Two million people sign a petition? So what? There are 300 million of us. That means that considerably LESS than 1% think an impeachment is justified. The people who've "raped the economy" are the Democrats that dole out goodies to the tune of $5 TRILLION over a 30-year period in the "War on Poverty" without reducing "poverty" by a single percentage point and those who think it's the proper function of government to play Robin Hood by stealing from producers to give to the unproductive. By ANY definition, our so-called "progressive" tax system is robbery--defined, for example, in the Texas Penal Code as: "The taking, by force or threat of force, the property of another and converting it to one's own use or to the use of another, not the owner!"

[fran-pan]

don't think that it is just a coincidence that both of these melt-downs happened when a bush was in charge.. how do you think that family has made its money.. this is george and cheney's last chance to
rip off the american tax payer before they leave office.the last chance to pay off their rich contributers
and friends.th­ey have tried to set off a panic so that people will do just what they want and not question
it.. just like the non-existant wmd's..i hope that congress finally has the courage to do the right thing.
there should have been impeachment trials a long time ago.

[Retrofuturistic]

There is no statute of limitations on impeachment.

[REinsider]

The Bush-Paulson "BAILOUT" plan and its arrogant, dictatorial terms should move congress to impeach Bush, Cheney, Paulson. The Bush-Paulson plan doesn't even try to hide its contempt for the American people, and The Constitution.

[Brokenduck]

This is the price we must pay for being the fattest, most unintelligent, over-entertained, apathetic nation in the developed world. Unfortunately, nothing has ever been gained in our history without a good deal of pain as precedent, and I don't think much else will change with this newest bailout.

This bailout will not work. It will keep Wall Street from going into immediate free fall, while merely prolonging the inevitable for six-twelve months. By that time, Bush will be long gone, along with his cronies.

Keep in mind that the main difference between the 20's and today is the fact that everyone..­.or nearly everyone..­...today has immediate access to information. We have no excuses today.

[watchTVgetSTUPID]

If the Democrats cave, they should know the Republican will use it against them even though the Republicans are the primary implimenters of the crash.

I allready hear the rational ... the Democrats are spending $700 billion to pay back their corrupt lobbyists and insiders..­. and the Republicans tried to stop them.

Democrats and Obama need to distance themselves from this Republican disaster.

[DickTater]

Somebody name me an american financial crisis that WAS caused by the Avg. Joe? Bueller? Anyone?

It is always the fatcats, the corporatists that do this to our country, to it's people, to the economy. They cause decades of depression and misery where once there was plenty.

Arguing about any other point is futile. Did they poison you with a rotten egg or a tasty mushroom? Who cares, they tried to poison you!

We have got to wake up in this country. These 3-piece-suit types do this EVERYTIME.

Letting them have ANY say, letting them ANYWHERE near the cure is lunacy.

BTW....why are we trying to salvage and re-establish a broken, useless thing? This is like 700billion so we can rebuild our Perpetual Motion Machine...­.which actually never worked in the first place.

[schatsie]

oh and I absolutely loved the details and facts, really great article...

[schatsie]

I disagree about the allowable interest rate. It should be no more than 10% above the CPI as determined for the Social Security increase..­.However I would also allow processing fees to not exceed $15 to $29 based on the amount of the paycheck..­.

Also, we need to hammer it home that these companies had the most sophisticated information in the world to assess the credit risk and IGNORED that information and CHOSE TO GAMBLE...T­hey did not have to loan the money on those terms at all... And anyone who chose to gamble with them was highly sophisticated and also chose to ignore the risk...

I don't give drinks to alcoholics and I don't give money to GAMBLERS and the government has a fiduciary responsibility for our tax money....

[Rule Of Law]

It really isn't about the money. It's about the use and abuse of absolute raw power.

It's about a few people having it, and everyone else having None! That is the basis of Fascism; a feudal society where we, the serfs, are nothing more than tools for the Corporate Royalty.

Fortunes are relative. If I have 100 dollars and everyone else has nothing, I am wealthy. John D. Rockefeller's fortune at the turn of last century would be over $300 BILLION in todays dollars. Bill Gates would be shining his shoes.

But it is not the absolute amount of his money that made him a Titan--it was the fact that the rest of the world--other than a handful of Chosen--had nothing, which gave him immense power. These people lust for that power; the ability to do or say or go or have what ever they want and no one dare tell them no.

And these Depressions shake out the pretenders to the throne and consolidate the power in the hands of a few select families. We Have Been Here Before. Again and again and again, and we just don't seem to learn anything from it at all...

[schatsie]

Gotta tell you, Rockefeller wrote a book about the Ludlum mines in Colorado that he made absolutely NO MONEY ON the Enterprise­....

then in 1933, JP Morgan said that the economy was fine.. (I think that is who said it, Hightower had it in his book)

The world is just fine for the rich and they really do not care for the rest of us at all... Thank God Social Security was not privatized­..

[Rule Of Law]

Yes, I'm beginning to believe that F. Scott Fitzgerald may have been more right than he knew, when he said that the rich are different from you and I. Their view of the world is one based on privilege, their morality is situational, and their idea of the law--well, we know how they view the law. They act almost like a different species and I look forward to the day when we can examine the DNA from the ruling families and see what commonalities they share, and how distorted it is from the rest of humankind's genetics.

All the do-gooder works, foundations, charitable gifts, museums, ad nauseum, that they fund or endow or name after themselves are merely there in an attempt to sway history into presenting them in a favorable light. And while everyone talks about Bill Gates as the most wealthy American, the Rockefellers and Morgans still call the shots for this country and our economy.

[DoctorABC]

Okay, folks, after reading this, *Contact* your congressional reps, U.S. Senators (if if they may be GOP), Reid and Pelosi. We can't live as a nation without oversight-- the past seven years prove it on so many levels and issues.

[BadChristian]

Thank you for the analysis and information on the groups acting for a better bail-out plan, Mr Dreier.

You say;
"We suggest that, in addition, the plan require every executive at a firm that accepts the public's bailout money to agree to a salary cap; a good rule of thumb would be no more than ten times what the lowest paid person in their firm earns, to a maximum of $1 million per year. "

I hope that they will take people like temp. eployees into account.

[TheGodlessLiberal]

Finally, an article that clearly spells out the connections between this dirty deal and those of the not-so-distant past. We should all recognize this bailout for what it is - yet another handout to the free-marketeers who've been allowed to run amok with our economy for the past few decades - and be infuriated about it. The Democrats need to be pushed to grow a backbone, for once, and stand up for the 'hard-working Americans' they claim to represent.