Botching the Bailout

by Zach Carter, Media Consortium MediaWire Blogger

The Bush administration is squandering hundreds of billions of dollars on incompetence again.

In a House Domestic Policy Subcommittee hearing on Friday, Rep. Dennis Kucinich, D-Ohio, took Interim Assistant Treasury Secretary for Financial Stability Neel Kashkari (read: bailout chief) to task over the Treasury's decision to spend every cent of the first $350 billion in bailout funds buying up preferred stock in Wall Street icons and other banks, while allowing troubled borrowers to fend for themselves.

Kashkari did his best to deflect the outrage, but his task would have been easier had the Treasury's position been defensible. In a Senate Banking Committee hearing the day before, both consumer-protection advocates and banking executives endorsed an anti-foreclosure initiative devised by FDIC Chairman Sheila Bair that would create strong incentives for the private sector to cut borrowers some slack. Despite the plan's broad appeal, both Paulson and Kashkari refused to devote any Treasury funds to the program, making the bailout chief sound like, well, a chump, when he insisted that Treasury is doing everything in its power to keep people in their homes.

The whole thing is beginning to look a little too much like Iraq. Bush administration officials steamroll both chambers of Congress with warnings of a dire emergency and are rewarded for their efforts with unprecedented authority and funding. Shortly afterwards, it becomes clear that the initiative has been squandered on meaningless giveaways to huge corporations without any corresponding social benefits. Naomi Klein of The Nation details the corruption parallels in an illuminating piece for Rolling Stone.

Laissez-faire lunacy

Most depressing is the bailout's complete impotence with regard to providing broader economic support. Paulson and Kashkari have succeeded in keeping the U.S. financial sector afloat for the time being, but despite an enormous injection of taxpayer funds, banks are not lending money out into the broader economy. One part of the problem is the fact that President Bush & Co. took years to acknowledge that the country was in fact facing disaster (remember Paulson's 2007 talking point that the subprime mortgage crisis was "contained"?). Now that the Treasury is finally taking action, it is doing so in an environment where there simply are not many good loans to be made. The other roadblock is Paulson's refusal to require banks who accept public money to put it to use for the public good, as Joshua Holland explains for Alternet.

That desperate attempt to adhere to some kind of free-market principle--not forcing companies to do anything with billions of dollars allocated to partially nationalize them--was on display Friday at a speech Bush gave in New York. It sounds like a sick joke. After demanding $700 billion to save Wall Street, Bush is still warning against the evils of government intervention, claiming that free-market systems have a monopoly on "social justice and human dignity."

"The greater threat to economic prosperity is not too little government involvement in the market," he said. "It is too much government involvement in the market."

Matthew Rothschild skewers this absurdity over at The Progressive.

"You can't have social justice and human dignity with mass unemployment, rampant foreclosures, high rates of poverty and food insecurity, and a health care system that leaves almost 50 million people uninsured," Rothschild writes.

Bush did make a few nods to sanity during his speech, arguing that markets need to be "more transparent," but the claim was a little perplexing amid reports that the Federal Reserve is refusing to disclose who it is granting about $2 trillion in emergency loans.

"Where is the ridicule?" Dean Baker asks in a blog for the American Prospect, arguing that Paulson and Bernanke are looking more like "crony capitalists" every day.

Going green, going global

Bush's speech was designed to frame the debate surrounding the meeting of leaders from the world's 20 largest economies to address problems in the global financial architecture. Fortunately, President Bush does not have final authority to sign an agreement for the U.S., that task will be left to Barack Obama in April of next year. Over at oneworld.net, Gary Gardner and Michael Renner note the opportunity not just for a New Deal to refashion the U.S. economy, but to ink a Green Deal that does away with global dependence on fossil fuels and provides for a fairer distribution of wealth across the globe.

At the moment, U.S. economic policy remains dominated by how to handle the bailout. How Democrats seek to proceed with lashing Detroit automakers to that $700 billion debacle will say a great deal about the majority party's governing intentions heading into the next Congress.

"It's time to think big," Andrew Leonard writes for Salon.com. "A Manhattan Project-scale plan to move the U.S. into an energy-sustainable future should start with a complete restructuring of the automotive industry," according to Leonard.

The sagas of the financial and automobile industries have more in common than meets the eye. Both have lobbied heavily against new regulations for decades, and the lax oversight has left both in dire straits. While conservatives are quick to point to labor union contracts that make workforces at GM, Ford and Chrysler pricier than for foreign manufacturers, the fact is that the Big Three have drastically lost market share in recent years by failing to make cars people actually want to buy. In a video produced for American News Project, Garland McLaurin details how Detroit spent millions lobbying Congress against raising fuel economy standards while failing to develop cars that achieve high gas mileage.

Millions of people could be out of a job if the Big Three go under, but if Democrats hurl money at the companies with no strings attached, they're no better than the current administration's set of bailouteers.

This post features links to the best independent, progressive reporting about the economy. Visit Economy.NewsLadder.net for a complete list of articles on the economy. And for the best progressive reporting on critical immigration and healthcare issues, check out Immigration.NewsLadder.net and Healthcare.NewsLadder.net.

This is a project of The Media Consortium, a network of 50 leading independent media outlets, and created by NewsLadder.

Comments

[etharmon]

I NEED HELP compiling the A-Z's of the financial crisis. We need to get a cohesive picture of how it started, the banks role, Washingtons role, the bail out, economists warnings, its consiquenses, and possible solitions that WILL WORK.

We need to get all this information in one place in order to educate people World Wide and motivate them to do something to fix it.

Go to www.nobailout.wetpaint.com and help us get all the information in one place.

[priorato]

THE BAILOUT IS CRIMINAL, INEPT, INCOMPETENT AND EXACERBATING THE PAIN OF U.S. CITIZENS

… just like the rest of the Bush Administration policies for the past 8 years

Consider:

1) Original bailout was scrawled on 2 ½ pages and sent to Congress.
2) WH Spokesperson Fratto admitted the Administration worked on the plan for months.
3) Initially, Paulson wanted $700 Billion “blank check”
4) When asked how they arrived at this figure, a Treasury Spokesperson said, “[I]t's not based on any particular data point, we just wanted to choose a really large number.”
5) “Bailout bill” included requirements of transparency; accountability; oversight and a Commission to insure funds spent according to mandate of legislation.
6) Treasury spent nearly half of the $700B, but failed to set up any oversight mechanism.
7) Now Treasury is abandoning their strategy – even though it is now law.
8) Treasury [unilaterally] modified provision of tax code allowing banks acquiring other banks to write off large losses – estimated to be $140B windfall for banks.
9) Instead of using “bailout” funds for easing credit markets, banks and other financial institutions using money for acquisitions; salaries; bonuses and other purposes contrary to intent and spirit of legislation.
10) On Capitol Hill today, Paulson admitted previous strategy of buying toxic assets was not worth pursuing, and he admitted they didn't know what was happening and how they could fix it.

[rf-hawaii]

They're robbing us again. And Congress helped.

[Rule Of Law]

"but despite an enormous injection of taxpayer funds, banks are not lending money out into the broader economy."

But according to this found on Sirota's blog today--

• Bank lending to corporate America and individuals has not declined.

• Lending between banks has not dried up.

• Commercial paper (short-term borrowing by nonfinancial companies) has fallen, but not seized up as a source of commercial lending. (Indeed, commercial-paper levels last week started to head back up for the first time since the failure of Lehman Brothers, in mid-September.)

• Banks do not, as popularly believed, play a large role in channeling money from savers to borrowers.

If those assertions are factual, and I believe they are--that we are not and have not been in danger of a tightening of credit except as a tool with which to beat us into submission--then the only answer is that we have not been told the truth--Again! That the necessity for heedless speed compounded by irrational fear generated as Policy by Bush has been used once again to transfer huge amounts of our money to the wealthy.

[johnsopinion]

When I enter 2 trillion into my office calculator, I get an overflow error.
So, putting pencil to paper (remember how to do that?), will someone
please tell me why is it being talked about and where did this "1.3 trillion"
came from?

I ask this only because I've seen it time and time again where an article,
like the one above, begins by talking about the 700 mil bailout but then
switches to saying something like "reports that the Federal Reserve is
refusing to disclose who it is granting about $2 trillion in emergency
loans" as if the 2 trillion is common knowledge.

According to pencil and paper, that's 1.3 trillion more than was voted on!
What did I miss?

[twofish]

The $2 trillion the Fed has loaned in secret is separate from the $700 Billion Congress voted to buy up bad mortgages with. They got it from the place the Fed always gets it, out of thin air. So you really have $2.7 trillion to think about, though the Fed loans will supposedly be paid back. The reason given for not letting us know who got these loans is that if we knew which banks got some, we might pull our money out of those (and dump their stock?) and then they could fail.

The reason banks are using the bailout funds to buy up smaller banks rather than increase lending is still forthcoming (don't hold your breath).

[Mnemanth]

Call it what you will, but this isn't incompetence. They're actually quite brilliant, in a way.
Back when Bush LLC came into power, I remember seeing Rummy's brash, loud, abrasive, and utterly inappropriate attitude during a news conference. And...no one said a thing about it.
For the past eight years, these people have done whatever they want, whenever they want, however they want, knowing full well that this is a nation of the meek. So long as Joe the Pipe Layer and his family have nonstop cable, and their minimum wage jobs, and something to constantly be afraid of, Bush LLC has had free reign.
So, the past year, and these theives know they're going to be shown the door...
Whoa! Be afraid- we're running out of oil- pay through the nose at the station!
Whoa! Be afraid- you're going to lose your home and life's savings- let's give billions to the bank! Whoa! Be afraid- every red cent that's being spent on these so called "crisies" is going directly into the pockets of Bush and company on their way out...
The only crisis I see is the last one, and still no one is doing a d*mn thing about it.
Good luck George. You and your buddies took us for all we've had, and we let it happen.

[TonyOnly]

"Millions of people could be out of a job if the Big Three go under, but if Democrats hurl money at the companies with no strings attached, they're no better than the current administration's set of bailouteers." - This is true, but I still have faith in American igenuity. Don't count me among the Limbaughs & Hannitys that are telling us the American Automobile Industry is a dinosaur and their cars don't belong in our driveways. After all, wasn't the Republican election slogan "Country First"? Well, what could be more "Country First" than the American Automobile Industry? We need to repair it, not scrap it.

[websmith]

Paulson is the Secretary of the Treasury. He is not supposed to try to manage the economy. He is supposed to protect the nation's money. He is not supposed to decide who gets the country's money. He is supposed to dole it out as Congress mandates. He is not supposed to give it away. He is supposed to make sure that all money due to the country's treasury is collected and held securely until Congress decides to spend it. He is not supposed to mandate economic policy. He is supposed to make recommendations to the government. The idea that the government would buy into his new assumed role as a banker taking care of the banks and deciding economic policy is, to say the least and for the lack of a more illustrative word, bizarre.

The American people told Congress and the Senate not to pass this bill. Now, as the banks have taken the money and invested it in themselves and even foreign economies, our legislators are thoroughly embarrassed, but still have the nerve to come before us and act like they know what they are doing while foreclosures mount.

http://ewebsmith.com/gov/autobailout.html