A Fox to Protect the Henhouse?

Does it really matter which party is in charge when it comes to bailing out the Wall Street hustlers whose shenanigans have bankrupted so many ordinary folks? Not if the Democrats roll over and cede power to the former head of Goldman Sachs, the investment bank at the center of our economic meltdown.

What arrogance for Treasury Secretary Henry Paulson--who the year before President Bush appointed him treasury secretary was paid $16.4 million for heading the company that did as much as any to engineer this financial travesty--to now insist we must blindly trust him to solve the problem. Paulson is demanding the power to act with "absolute impunity," said Sen. Christopher Dodd, D-Conn., who admonished the treasury chief: "After reading this proposal, it is not only our economy that is at risk, Mr. Secretary, but our Constitution as well."

Clearly, it's a vast improvement to have Dodd in the chairman's seat of the Senate Banking Committee, asking the right questions, rather than his predecessor, Texas Republican Phil Gramm, who presided over the committee in the years when the American economy, long the envy of the world, was viciously sabotaged by radical deregulation legislation.

Gramm, whom Sen. John McCain backed for president in 1996, pushed through the financial market deregulation that has brought the American economy to its knees. Maybe this time Congress won't give the financial moguls everything they want, including a bailout for foreign-owned banks like Swiss-based UBS, where Gramm now hangs out as a very well paid executive when he's not advising the presidential campaign of McCain, his old buddy and partner in crime. Oops, sorry, no crimes were committed because the deregulation laws Gramm pursued and McCain faithfully supported decriminalized the financial scams that have proved so costly.

Just check out the language of Gramm's pet projects, the Gramm-Leach-Bliley Act of 1999 and the Commodity Futures Modernization Act of 2000. By preventing mergers between the various branches of Wall Street, the former act reversed basic Depression-era legislation passed to prevent the sort of collapse we are now experiencing. The latter legitimized the "swap agreements" and other "hybrid instruments" that are at the core of the crisis.

The legislation's "Legal Certainty for Bank Products Act of 2000," Title IV of the law--a law that Gramm snuck in without hearings hours before the Christmas recess--provided Wall Street with an unbridled license to steal. It made certain that financiers could legally get away with a whole new array of financial rip-off schemes.

One of those provisions, summarized by the heading of Title III, ensured the "Legal Certainty for Swap Agreements," which successfully divorced the granters of subprime mortgage loans from any obligation to ever collect on them. That provision of Gramm's law is at the very heart of the problem. But the law went even further, prohibiting regulation of any of the new financial instruments permitted after the financial industry mergers:

"No provision of the Commodity Exchange Act shall apply to, and the Commodity Futures Trading Commission shall not exercise regulatory authority with respect to, an identified banking product which had not been commonly offered, entered into, or provided in the United States by any bank on or before December 5, 2000. ..."

Even some Republicans on the Senate committee expressed exasperation Monday with the swindles that they had voted for with such enthusiasm in the past, as well as with giving Wall Street yet another blank check. Sen. Jim Bunning, R-Ky., condemned Paulson's proposal as an effort to "take Wall Street's pain and spread it to the taxpayers." He added, "It's financial socialism and it's un-American."

He's wrong on that last point, for what is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as "financial fascism." After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company's corporate ancestor, which made out quite well until Hitler's bubble burst.

Smell a rat if Congress approves the Paulson plan without severely curtailing CEO pay and putting a freeze on the mortgage foreclosures that are threatening to destroy the homes of millions of Americans.

Robert Scheer is author of a new book, "The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America."

Comments

[ringeroo]

WILL SOMEBODY PLEASE EXPLAIN TO ME WHY THEY COULDN'T CHANGE THIS DEBATE TONIGHT TO FOCUS ON THE ECONOMY. THE BIGGEST FINANCIAL LEGISLATION OF MY LIFETIME. THE CANDIDATES' VOTES DAYS AWAY AND WE DO NOT GET TO HEAR WHAT IS GOING ON BEHIND CLOSED DOORS?!?

WE DON'T GET TO HEAR THEIR POSITIONS ON THIS BAILOUT BEFORE IT IS A DONE DEAL?!? THE PERFECT OPPORTUNITY--YET NEITHER CANDIDATE HAS REQUESTED THE CHANGE FROM FOREIGN POLICY TO ECONOMY?!?

DUPED AGAIN BY THE CHARADE OF A TWO PARTY SYSTEM.

[Rule Of Law]

Thank you Mr. Scheer for finally calling it what it is---

"financial fascism."

And can the boot be far behind the grasping hand?

[RetiredSeniorChief]

Agreed. The plan proposed is reverse socialism. What about a three month bailout package for 150 billion dollars? Try before we buy.
If you accept the premise of free market enterprise, then people who do stupid things should fail. If that causes economic meltdown, then we need to not let companies get big enough to have that effect. What would failure be? Short term loans would be hard to get to finance payroll or inventory. Option: if a company must layoff folks as a result, have them apply for a two/three hour turnaround SBA loan. Staff them up and make 'em work 24/7 - make the SBA loans faster. Same for inventory financing. Make the company show valid reasons and disprove gross mismanagement. If they're decent companies, we will MAKE money. Give them terms they would get if the credit market was operating normally. SECURE SOME COLLATERAL.
There's no guarantee that the bad paper bailout plan will work. If banks fail, the SBA replaces them. Sell all after the system corrects itself. This costs less and would have the same effect - except that some big banks will fail. If a business has to constantly borrow to meet payroll/inventory needs, it SHOULD fail. A readjustment is needed - we can't continue to grow our economy on easy credit.
Offer folks with tough mortgages easier terms to stay with the loan. As long as we avoid nonpayment/foreclosure, we should be ahead with liens which will be valuable after market corrections.

[frank1569]

Question:

I'm a taxpayer who has a Freedie Mac mortgage. The taxpayers, me included, now own Freedie Mac. Does that mean I now owe myself $200K?

If I can't meet the monthly, do I have to call myself 3 times a day demanding payment? Will I have to foreclose on myself if I miss too many payments?

Did MY government really use MY tax money to buy MY house?

[sposton]

"Did MY government really use MY tax money to buy MY house?"

Nope! Your money was spent long ago on interest we pay on the borrowed money from Chinese in order to fight our useless wars and to give the rich their tax breaks.
Even the proposed $700 billion bailout is the money that we do not have. It is either borrowed or printed. We are entirely bankrupt but who really cares? Just charge our collective CC. As long as Chinese finance us everything is OK. We think we are too large too fail just like Lehman Bros was to large to fail! How this country has gone from the number one creditor to number one debtor is the story of criminal irresponsibility of our elites.

[Mental Deficit]

I hope somebody can get prominently quoted in the MSM, pointing out how, under the WTO rules of elite economic globalization, (formerly) sovereign nations are required to give "fair treatment" to foreign investors.

So if the US govt bails out "domestic" multinational corporate banks like Citigroup, then in all fairness, it also must bail out "foreign" multinational corporate banks.

We need to get the American public beyond the stupid stage of "taxpayer bailout", and get them to start questioning the basic economic "rules" -- and *who* makes those rules!

PS -- if the US bails out Citi, but does not offer the same treatment to multinational banks based in Canada or Mexico, then they can SUE the US govt for damages under NAFTA.

[ld]

If I can expand, there need to be at two things added. First, the taxpayers need a real stake in the companies they are going to prop up, either via acquiring equity - my choice - or via a high interest rate.

Second, there has to be real regulation of the funds. This would not include garbage like Sen. Schumer's plan where Paulson "reports" to congress. We saw Gen. Petraeus all but give congress the finger in his last report. "Reports" to our cowardly congress are worthless.

[newpantaloons]

I say, watch out for Martial Law. Bush could very well enact it, since he went so far as to redefine it in his Executive Order #12919. He could cite the current financial "crisis" as the reason to enact it and then would probably cancel or reschedule the election. Congress would have NOTHING to say about it. According the the Law, Congress would be forced to go out of session for 6 MONTHS. They would be ordered to go home. After 6 months, during which the Bush Administration would be able to do whatever they pleased with the Treasury, according to the Law, congress could then return and try to pick up the pieces. Pay special attention to this Executive Order, which, along with many others, falls under EO 12919.

EO 11051: Provides FEMA complete authorization to put above orders into effect in times of increased international tension of economic or financial crisis (FEMA will be in control incase of 'National Emergency').

If Bush and Co, after their arrogant and bold-faced, in your face giveaway proposal, feel that Congress will not go along with their plans, then look out!! We must be vigilant here.

Here is a link: http://www.sourcewatch.org/index.php?title=Establishing_martial_law_in_the_United_States

[sposton]

Entirely possible but probably unlikely. But even to admit that anything like that is possible is quite an indicator how far we've traveled down the road to fascism. American people are certainly not free! American Empire gobbled up the American Republic! We cannot have a republic while remaining an Empire. It is time to pull the plug on the Empire. British Empire was ruined by the two World Wars but it dissolved relatively peacefully. We are more likely to go down fighting in blazing neocon glory.

[apduncan1]

Can this be the "October surprise"?

[Jason Abdon]

This is the September surprise. Clean your boots well. October is not here yet.

[CatfishJohn]

...Benito mussolini, lamppooned in history, presciently predicted the true fasicm of the the future would not be a military helegmonious one but rather a bloodless corporate/business fascism...are with at the precipice of this in our history?...we are certainby hurtling towards a plutocracy in terms of wealth concentration...is this moment of decision the natural extension of a plutocratic impetus coupled with a corporate- dominated media and cultural zeitgeist?

[apduncan1]

Yes. We are already there...

[RepugsOut08]

As Harry Truman once said, "How many times do you have to be beaten over the head until you realize who's doing it to you?"
I guess we'll find out in November if folks are so addled from the head blows inflicted by the Bush regime, they're unable to think straight.
I say let's wait for an Obama administration to work out this mess. If McCain is elected, it won't matter anyway. We'll just be down on the mat, out for the count.

[CaptainObvious]

But if we don't give them everything they're asking for immediately, the smoking gun could come in the form of Financial Instruments of Mass Destruction.

WAKE UP PEOPLE! We've played this game before. Congress will probably manage to get a few concessions, like an oversight role and limits on executive pay for bailed-out companies, but then ultimately pass the bill as-is.

So it's like invading Iraq: once again, we get an extremely expensive "solution" to the problem that fails to address the root causes, and just happens to benefit the wealthy elites and bushevik cronies at the expense of the rest of us.

For my money, I'd rather see a solution that actually addresses the problem: the bad debt in the housing market. The bad debt in the housing market, or at least most of it, was caused in part by predatory lending, and also the bursting housing bubble which caused sharp declines in home values in some areas. If they used the money to fund a program to help people in these situations, it would probably be a lot cheaper and go a lot farther to restoring the long-term strength of the economy.

But of course, that would be socialism.

[MagisterLudi]

Republicans want foxes in the hen house. Dems insist it must be the wolves, but with anger management training. Nice.

[edva]

Foxes in the henhouse exactly - and now the chickens are coming home to roost.
How is it possible, or desireable, to "restore confidence in the market" when the market itself has arrived at a position where confidence is neither warranted nor justified? Isn't that the free market at work? An artificial bailout, in addition to all its other negatives, is simple "enabling" a failed system.

The ultimate answer to the interconnected two biggest problems facing humanity today, energy and the environment, is for us to quickly develop alternative methods of energy production, and most importantly, to distribute that technology around the world. Once we are freed from the tyranny of oil, everything will be better for everyone everywhere. Otherwise, it's just more of the same.

[RENREVARD]

Bailing out Foreign Banks is absurd.Its like saying to China you must Bail Out the struggling Auto Companies because they build cars and employ Chinese Citizens in your Country.

[KiwisCanFly]

Thanks Robert Scheer. Foxes indeed, like the Russian peacekeepers in Georgia. As Obama said, "a genuine international peacekeeping force - not simply Russian troops."

My point is that the conflict of interest that Paulson's tenure represents cannot be ignored. He cannot be given the power to act with 'absolute impunity.' I can't trust Paulson's intent.

Isn't this bill mainly about installing confidence in the market and promote money flow?

Is this bill addressing transparency?
Is this bill addressing how to stop this happening again?

Unless these issues are addressed, won't the omission advance uncertainty in the markets?

[Sumocat]

"...McCain faithfully supported decriminalized the financial scams that have proved so costly." -- That's putting it mildly in my opinion. Until last week, McCain trumpeted his record of deregulation, implying dereg was the cure-all for our industrial woes. Now he's trying to shove that toothpaste back in the tube. It's somewhat insulting but amusing to watch him try.

[apduncan1]

And Phil Gram, the architect of this debacle, is his economics' advisor. Go figure.