Financial Crisis: Time for a Citizens' Plan?

Call it extortion. Every American is now being told to ante up $2000 - an estimated $700 billion in all - to bail out the banks from their bad bets, or they'll bring down the entire economy.

In the speculative frenzy that allowed the Masters of the Universe to pocket millions personally, the banks filled their coffers with toxic paper that no one wants to buy. Now they sensibly don't want to lend money to each other, since no one knows if the other is solvent. So they go on strike, and threaten to trigger a global depression, if they don't get rescued. (for more details go here.)

The bail out will take place simply to avoid that depression. But depressions have some salutary effects - the scoundrels go belly up, the weakest get purged. And, in the wake of the disaster, people demand strict regulation of the money lenders to keep their greed in check, and government spends money on the real economy to put people back to work.

So if we're going to ask Americans to pay to avoid the depression, we better demand the accounting that wouldn't otherwise take place.

We need a citizens' plan on the crisis. Here's a first draft, derived from discussions with a range of independent experts.

No bail out should go forward without the following minimal conditions:

1. Taxpayer money; taxpayer accountability. The Treasury wants unlimited authority to spend $700 billion in a revolving fund with no rules beyond its own discretion. We can't trust the most spectacularly corrupt administration in memory to decide how they'll cut the deals with the banks. We'd get fleeced. Instead, the law must require an independent entity, with consumers and workers having a majority of the seats on a board with authority to create rules that will prohibit gaming of the bailout. And the Congress - itself sadly compromised by Wall Street money - should be empowered to name independent monitors and to approve all board members.

2. Taxpayers share in the upside. The Treasury bill would buy the bad paper of firms without taking any equity in the firm. That's an invitation to larceny. If a firm decides to auction off its toxic paper to the US agency, taxpayers should get equity in that firm, in proportion to the assets we buy. That will deter profitable firms from using the agency as a dump for their toxic paper. And it will insure that if the bailout works and the firms become profitable, taxpayers, not simply bankers, benefit from the upside.

3. Shut down the casino. No bailout of the predators can go forward without new regulation for the financial system - capital requirements, leverage limits, bans on exotic instruments, transparency, limits on compensation schemes. The shadow banking system - hedge funds, private equity firms - must be brought under the glare of regulators. The Federal Reserve should be directed to police asset bubbles. Over the counter trades - like the credit default swaps - should be brought into public exchanges. Some details should be written into the law; Treasury can be mandated to issue more comprehensive regulations by a date certain, with fast track rules for consideration by the Congress. One thing is clear: any promise to do the bail out now and the regulation later is simply a lie.

4. Curb excessive CEO pay. Wall Street fatcats shouldn't be pocketing millions taxpayers are forced to bail them out. Any firm that applies for relief must agree to limit the compensation of any executive - pay, bonuses and perks - to no more than the highest pay offered a senior federal official. Future compensation should be linked to profitability.

5. Invest in the real economy. Ending the bankers strike is not sufficient to avoid a serious recession, as consumers tighten their belts. A major public investment agenda - $200 billion or more - for developing new energy and conservation, rebuilding schools and infrastructure, extending unemployment and food stamps, helping states avoid crippling cuts in police and health services - is vital to get the real economy moving and put people back to work. If we don't do this, the coming recession will raise the cost of the Wall Street bailout dramatically, as credit card, auto and home loan defaults rise.

6. Aid the victims, not just the predators. No bail out of the banks can take place without a freeze on foreclosures and renegotiation of bad mortgages so people can stay in their homes. Bankers and home owners both made a foolish bet that home prices would keep rising. Many homeowners were misled by predatory lenders to taking mortgages that they didn't understand and couldn't afford. It would be simply obscene to help the predators and not those that they preyed on.

7. Curb the political corruption. No contributions from Wall Street PACs or executives should accepted by any legislator or candidate for national office. Paid lobbyists of Wall Street firms should be banned from any legislative contacts. Any meeting with representatives of Wall Street - and many will be needed to understand what is happening - should be posted immediately by legislators in a central place on the web. All those employed over the past five years by troubled firms seeking relief should be prohibited from profiting from the bailout. Without this ban, legions of executives from Bear Sterns or Lehman Brothers will create consulting firms to profit from cleaning up the mess that they made.

These demands will be met with howls of outrage, a renting of pinstripes. It will require a Congress, lathered with Wall Street contributions, to demand a deal that makes sense. This won't be easy, particularly with Republicans apparently lining up en mass to rubber stamp the Bush administration proposals. But trusting this administration to decide without conditions on how to bailout the banks with $700 billion in taxpayers money is simple lunacy.

These banksters have brought the global economy to the brink of the abyss. They want to use that crisis to give the Treasury a virtual blank check to bail them out. Counting the money already spent, more than a trillion dollars will be spent rescuing them from the mess that they have made. Before agreeing to that, Congress has to demand common sense conditions that insure the taxpayers won't get fleeced, and this won't be done to us again.

Make your voice heard. Add your comments below. Write Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and demand that they stand up. Write Senate Republican Leader Mike McConnell and House Minority Leader John Boehner and tell them that saluting the Bush administration is not sufficient. Tell the Committee Chairs Senator Chris Dodd and Rep. Barney Frank that the Treasury proposal is unacceptable. Finance is too important to be left to the bankers. And the bailout is too costly to be left to the Bush administration.

It's time for citizens to demand common sense.

Comments

[Jer1957]

I was born at night--but not last night.

Posturing aside--will Barack Obama (D-Goldman-Sachs) or John McCain (R-UnderPressure) say anything intelligent about the economic crisis?

The first one who says "Any bailout is a swindle," wins in a landslide.

[Jer1957]

Let's try Plan B.

www.larouchepac.com

[madhatter123]

There are so many opposed to this bailout. Why aren't we being heard?
Why should we be forced to buy up the bad securities if no one else will? Why not give taxpayers a stake in the lending of new credit? Wouldn't we then benefit from the successes as well as the trash? Limit CEO compensation to a percentage of the stocks dividend. (remember dividends?) Now they reward themselves whether they go up or down.
Also, can't figure out why my posts are not making it on to this site.

[Rabar]

I just cannot help it but I don't trust our government enough to believe that they can fix this financial crisis with Wall St. First of all the majority of the players are all in bed with one another and have been enriching the same through lobbyists. What makes anyone think that this has stopped or is going to stop anywhere in the future? Who's going to investigate the investigators? Where were they the last two years when all this was coming to a head...even the past year? How come it took the demise of two major financial institutions to "wake up the sleeping giant" in Washington? Perhaps this November this nation needs a cleaning out from the top on down. Voters in every district in this nation should look at their representatives currently in Washington and ask, "Were you asleep on the job?" "Did you allow this crisis to happen or could you have stopped it?" If the answers are yes, then you need new representation .

[williambanzai7]

Bush Bailout Rising
(to the melody of Bad Moon Rising
Creedance Clearwater Revival)
Adapted by WilliamBanzai7)

I see a a Bush Bailout arising.
I see trouble on the way.
I see fiscal earthquakes and lightnin.
I see bad economic times today.

Chorus:
Dont listen to Hank n Ben tonight,
Well, its bound to take your net worth's life,
There's a bailout on the rise.

I hear deficit hurricanes a blowing.
I know the end is coming soon.
I fear rivers of debt over flowing.
I hear the taxpayer voice of rage and ruin.

Chorus
Dont listen to Hank n Ben tonight,
Well, its bound to take your net worths life,
There's a bailout on the rise.

Hope you got your assets n things together.
Hope you are quite prepared to die.
Looks like were in for nasty market weather.
One eye is taken for an eye.

[george99]

Listen to what Congress says then watch what they do. There's an election in two months and there's enough hot air in Congress to lift the Capitol building. Bend over and grab your ankles you're going to get whipped.

[LightningJoe]

The lenders were largely operating under the prevailing bubble "wisdom" that the price of homes could only go up. This let them overlook all sorts of negatives, because they assumed that the ever-booming market they envisioned would fix any downside by sheer force of increasing wealth. Some knew how foolish this was (Obama did, for instance), but the lenders kept pushing paper based on that flawed idea.

Thing is, the very same idea was doubtless driving many of the buyers as well, whether or not they got the idea from their lender trying to sell them a home loan. Many Faux-programmed minions have been eager to point out that people "should have known" what they were getting into. But if the institutions, who REALLY should have known better, bought the ever-increasing-wealth meme hook and all, why would you expect a home buyer to know that the market may actually bomb?

The idea that buyers are somehow more culpable than sellers is baseless, when one remembers that the sellers were supposed to be the expert party.

I say buy company stock, enough to make them solvent and working again, but then....We The People own a piece of that company!

Dear government, please figure up my yearly US-Permanent Fund Dividend, take some out for taxes, and send me the balance.

[judgej]

Here's a citizen's plan.
1. Have congress set the interest rate for all subprime loans at 5%. That would address the main reason for foreclosures, ie that the teaser rates go up too high for the people to be able to pay. The banks will still make money [although not enough to finance those golden parachutes] and people are more likely not to lose their homes because they could continue to afford it.
2. Have the bailout money be a 'non bankruptable superior lien' on all assets of the company rather than the US owning 'equity' in the companies [which may prove to be worthless if the company tries to go bankrupt]. Congress has the ability to make bankruptcy rules. By being a 'superior' lien, Americans would be first in line to be paid and the companies could not use bankruptcy to get rid of us.
3. As a condition and consideration for a bailout, all officers of the companies involved would have to agree in writing to forego any golden parachute provisions and bonus or salary increases that may be part of their contracts, until such time as the people of USA are paid back.
Just some ideas from Main Street.

[billw8017]

I am sympathetic to the Marxist view that market instability and wealth stratification are due to excessive amounts of monies in the system. Money has to be spent and circulate; with needs met it pursues financial inventions (debt, risk, speculative trades). Early success inspires the search for similar success or greater and supports frauds and hoaxes. The $700 billion bailout, double our military budget for 2003, may meet particular goals, but it will cause a greater systemic collapse because the cure is the disease.

I have said before, high gas and food prices are basically the Republican tax that replaces the tax cuts. It is a complex matter playing out in private monetary decisions with all kinds of swings and gyrations, but it is a trend to inflation due to money and commercial paper being printed.

For what it's worth, I remember the S&L bailout. Particular Republican families profited hugely. John (Jeb) Bush got a $2 million gift in loan forgiveness. One con man bought a multi billion dollar bank chain for $500 (Five hundred dollars) of his own money.

[Jer1957]

Dr. Borosage is easily the most eloquent of bankrupt speculator Soros' friends to blog in favor of pretend billionaires 'right to loot us all.'

Like most Americans, I think we would be better off locking the "investment bankers" and "hedge fund mangers" up in jail--rather than bailing their gambling debts out with untold QUADRILLIONS of tax dollars.

Because in America, we believe in the rule of law--and that includes 'bankruptcy law' --even for hustlers and well-connected phony billionaires...

[JoBangles]

Just a reminder that the melding of the state and corporate/financial interests is fascism
Can there now be any doubt of what is taking place in the USA?

[BabsfromKansas]

Excellent blog - thank you!

[goodspeed]

Here's two more.

8. Outlaw the futures trading market. It's not necessary and is really market manipulation. Is the cattle rancher really worried that Americans will give up eating beef, that he need to know in advance if he will be able to sell his cattle ??? Hardly !!!

Does the oil Baron think he won't be able to sell his oil when its available because there will be no need for oil any time soon and we give up driving are cars ??? Not likely !!!

Get rid of future trading period !!!


9. Lastly, since the federal government will be "unclogging the financial markets" for the rich and the fat cats by purchasing these "assets" (packaged "lending financial instruments", which really are bundles of individual "defaulting mortgages or those soon to default" or to put it plainly "homes"),

they, the government, should NOT sell these "assets," or bad housing loans, back to fat cat rich investors who will be actually be buying up massive amounts of real estate, homes, houses, at discount prices (at discount prices because all these loan will eventually default and are worth less), and the fat cat now become the new property owner and so they sell and become even richer,

instead they, the government, should sell these homes at the same discount prices to existing veterans and returning veterans whom do not own homes, as additional compensation and replentish federal through a kindly gesture to veterans.

[wrabbitt]

We all know that anything congress comes up with will feature a new way for them to make money off the taxpayers! They are not going to do anything to jeopardize their bed partners from wall street! The taxpayer is not at fault! Yet we are being forced to bail out more companys that have padded congresses pockets over the years with donations and contributions. This needs to end. Has government become blind to the needs of America? Has greed dictated policy in Washington long enough? Change will come, but at the expense of more middle class jobs! Higher taxes to off set the shrinking economy, Government cutting more programs that could help the middle class, And health care? well, we will just have to not get sick! Looks like the top heavy government is having foundation problems!

[thewho77]

NOT ONE DOLLAR TO THOSE WALL STREET VULTURES

They need to collapse. This isn't a real government with any real support. Any money that they give them will not bind me. I won't give them one dollar.

[pemig]

Has there ever been a more corrupt administration run by a group of total loosers as the Bush administration. History will not be kind to this mess. They lie, they steal, they cheat all in the name of helping the average citizen.