Originally I had planned on going through the Senate’s bailout proposal on a step-by-step basis. After reading through it I found this to be an impossible task. I can’t do it because doing so lends credibility to the notion that the sections of the bailout proposal I discuss have some merit. They don’t. Here’s why.
GENERAL OBSERVATIONS … Pirate Economics
The Senate proposal is larded down with pork and effectively rewards economic extortion. This is pirate economics.
Let’s make this perfectly clear. There’s a problem. But the problem does not exist on Main Street. The problem exists on Wall Street. Wall Street began creating, investing in, and insuring stuff they never should have insured. They dug themselves into a hole. Then they called on Washington to deregulate markets so they could dig a bigger hole. Wall Street gambled and they lost. Now they want the American taxpayer to bail them out. The Senate bill gives them their bailout.
THE FISCAL INSANITY … Accounting Gimicks
First up, the smoke and mirrors ...
Of all the gifts and tax credits granted in the Senate’s bailout version perhaps the worst provision (for the taxpayer) is the one that allows the Treasury Secretary to revalue the toxic financial instruments that are dragging down the books of the financial institutions (Sections 132 & 133). Allowing Secretary Paulson, who has many friends on Wall Street, to unilaterally increase the value of the toxic garbage and bad deals Wall Street made will cost the American taxpayer billions more (yes, I doubt Paulson's integrity on this one).
And then there’s the regular pork. There's too much of it ...
If opponents of the original House bill didn’t like it because it was fiscally irresponsible, it makes absolutely no sense to add to the fiscal irresponsibility by adding at least $100 billion in taxpayer funded tax breaks for pet projects. Making matters worse, everyone’s invited to the party (except the American taxpayer, who picks up the tab). The Senate bailout version allows Secretary Paulson to bailout foreign banking institutions.
WHAT'S MISSING … Common Sense
The Senate version doesn’t say “Grow Up” to the financial institutions ...
We seem to have forgotten that, beginning last year, the federal government made hundreds of billions available to banking institutions. In spite of this, financial institutions still will not lend to each other. Why? Because they are afraid of each other's stupidity and, incredibly enough, they don’t trust each other. Yet, they want the U.S. taxpayer to trust them, again. Great.
And what about the American taxpayer ...
The Senate version says absolutely nothing about foreclosures caused by predatory lending practices. Nor does it say anything about bankruptcy laws that turned personal debt (and especially credit card debt) in America into a virtual debtor’s prison.
Look, if you’re going to provide assistance to Wall Street in troubled times, the American taxpayer, who got sucked into the mess (because they trusted Congress and Wall Street not to abuse their positions), deserve some kind of assistance to get out of the predatory and poorly structured loans that helped encourage this mess.
Simply allowing judges to review mortgage contracts would help. There's no money, or bailout involved here. Just common sense.
This last point is important because Wall Street went nuts with the toxic mortgage products, that are now dragging down the system, after bankruptcy laws changed in 1978. By not allowing judges to adjust mortgage contracts – no matter how egregious or disceptive – Congress effectively said to the American homeowner, “If you got swindled you have to live with the mistake … tough luck.”
Wall Street, however, laughs all the way to the bank. And they're going to giggle like school girls if they get this bailout.
FINAL THOUGHTS … For Now
Wall Street and media blowhards argue that if we don’t provide this bailout the economy will free fall into a new era of depression economics. This may be possible. But it's also extortion.
Simply put, this is not the only bailout proposal that can be made. And, yes, this is a “bailout” and not a “rescue.” You want the people you rescue to live.
We need to think this through. Specifically, we need to remember that if we are in such an emergency situation why doesn't Congress simply pass a bill that addresses the crisis – you know, without the pork? Why do we have to bribe members of Congress, who claim to care about America, to do the right thing?
I say judge the bailout proposal on its merits, not because a bunch of pirates have stormed the halls of Congress.
- Mark
P.S. I will discuss all of this, and more, on tomorrow's radio program.
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