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The great bailout of ‘08: A deal, maybe, but few details

Steve Perry — Thu, 25 Sep 2008 20:41:01 +0000

From AP’s Jennifer Loven, word that there’s a tentative Capitol Hill deal on the $700 billion Wall Street bailout. The terms are entirely sketchy, but it sounds like no agreement has been reached on helping distressed mortgage holders, only their bankers’ bankers:

The tentative accord would give the Bush administration just a fraction of the $700 billion it had requested up front, with half the money subject to a congressional veto, congressional aides said. Under the plan, the Treasury secretary would get $250 billion immediately and could have an additional $100 billion if he certified it was needed. The last $350 billion could be blocked by a vote of Congress under the arrangement, designed to give lawmakers a stronger hand in controlling the unprecedented rescue…

There were signs that the conservative-leaning House Republican Caucus was not on board. Both of Congress’ Republican leaders, Rep. John Boehner and Sen. Mitch McConnell, issued statements saying there was not yet an agreement. But Banking Chairman Chris Dodd, D-Conn., and Republican Sen. Bob Bennett, among others, said negotiators from Congress and the administration had arrived at a deal that could win approval.

McCain the suspender: Let’s keep politics out of politics

Steve Perry — Thu, 25 Sep 2008 14:29:34 +0000

Purely as a question of self-interest, John McCain’s exit-the-stage gambit makes sense. With cries of impending doom filling the air, he had nothing to gain by sticking around to discuss a subject he ill understands, all the while being pelted with quotations of the Hoover-like things he’s already said and done during his long tenure as a cheerleader of financial deregulation. On Monday of last week, McCain proclaimed the economy “fundamentally strong” even as Wall Street’s latest and gaudiest blowup was unfolding. Since then he’s faced erosion in the polls day after day.

There are those who think the real point of McCain’s whole exercise is to can the vice-presidential debate between Sarah Palin and Joe Biden, but that’s a grace note if it happens, far less urgent than McCain’s own immediate need to find a pretext for disappearing until a bailout is done and the acute phase of the crisis seems past. The ploy also serves the larger Bush administration push to get a deal through Congress with a minimum of reflection and revision, as they so spectacularly succeeded in doing with the Patriot Act and the Iraq War resolution.

But if McCain’s move makes sense for McCain in a narrow and craven sense, the implicit (and sometimes express) embrace of it by news media and the opining classes is a measure of how theatrical and unserious our politics, and especially our presidential campaigns, have become. There’s a political issue of grave consequence at hand? We must cancel politics at once!

The economic crisis on Wall Street is fundamentally a political crisis. The decisions being weighed now, about how to intervene in the economy to keep it from lurching to a halt, and how to minimize–or maximize–the long-term losses to the public at large, will shape the country’s options for decades to come.

We are already vastly in the hole from an Iraq War tab that Nobel economics laureate Joseph Stiglitz estimates at an eventual $3 trillion. If the Paulson plan is adopted substantially as proposed (with no provisions, or just token provisions, for recapturing bailout funds from future financial sector profits), that additional debt will guarantee that for practical purposes, only two lines exist on future federal budgets: the Pentagon and debt service. In fact, we are already facing a domestic future that’s drastically circumscribed by Iraq War debt, but that’s hardly a reason to double down.

The enormous national debt functions in part as a political tool, a lesson the Republicans learned a generation ago. After David Stockman, Ronald Reagan’s budget director, got over his initial disappointment at being unable to make deeper cuts in federal spending, he came to recognize that the political payoff of supply-side economics lay in the future, when accruing deficits would compel the dismantling of spending programs that were too politically popular to do away with under less dire budgetary circumstances. If Henry Paulson and friends sell this bailout with no consequential payback provisions, it won’t matter whether future presidents and Congresses continue to subscribe to neo-liberal austerity policies in principle. They will have no choice in the matter, because they will be broke.

In theory this is a moment of great potential for the Democrats, not just for purposes of this election but for reclaiming a popular constituency distinct from that of the Republicans. Apart from the half-a-loaf Dodd Plan — which, make no mistake, seems unmistakably superior to the Paulson heist — they have had remarkably little to say about the remedies for a crisis they ought to have recognized as a real election-season possibility.

Barack Obama’s refusal of McCain’s bait was one of the more gratifying things he’s done in this campaign. It was heartening to hear him say that now was emphatically not the time to stop talking about political solutions. There’s no question that Obama has seemed far more measured and presidential than the erratic, dithersome McCain — but who wouldn’t? Obama’s list of conditions for a bailout deal were quickly parroted in essence by McCain, and both amounted to affirmations of what internal dissent in Congress — driven in large measure by intransigent House Republicans — had already made an accomplished fact: On its own terms, the Paulson plan wasn’t going to fly. Finally even George W. Bush said as much last night.

Like the Iraq War, the financial crisis is being framed not as a debate over national direction but one over managerial competency. And managerial competency, vitally important as it may be, is not really a political issue. It is a subject that engenders discussions about the best means of executing a policy, not deliberations over what the policy should be. To the extent Obama and the Democrats accede in this — to the extent their actions suggest only that Obama would be a more responsible manager of crises like the present one — they are taking the politics out of politics, too.

The great bailout of ‘08: must-reads of the week

Steve Perry — Wed, 24 Sep 2008 16:25:54 +0000

Every hour of every day brings reams of fresh news reports and commentaries on the Wall Street crisis and the competing bailout proposals wending their way through Congress, but that doesn’t mean you can learn anything from most of them. David Cay Johnston, the great NYT reporter and author (Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super-Rich and Cheat Everybody Else; Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With the Bill) who has done more to illuminate the flim-flammery at the heart of the US tax code and Wall Street’s post-Reagan machinations, offered this warning to journalists yesterday:

In covering the proposed $700 billion bailout of Wall Street don’t repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don’t assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don’t assume there is a case just because officials say there is.

The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.

The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)

Ask this question — are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

Here are links to some of the most prescient and on-point analyses of the past several days, starting with Treasury Secretary Henry Paulson’s no-strings-attached bailout plan.

THE PAULSON PLAN

Text of the Paulson proposal

Glenn Greenwald, “The complete (though ever-changing) elite consensus about the financial collapse” (9/20)

Glenn Greenwald, “Growing right-wing opposition to the Paulson plan” (9/22)

Glenn Greenwald, “Interview with Notre Dame finance professor Richard Sheehan” (9/23)

William Greider, “Paulson bailout plan a historic swindle” (9/19)

Michael Hudson, “The Paulson-Bernanke bank bailout: Will the cure be worse than the disease?” (9/22)

Sean-Paul Kelley, “Text of the bailout is authoritarianism at its worst” (9/20)

Paul Krugman, “No Deal” (9/20)

Paul Krugman, “Balance Sheet Baloney” (9/23)

Robert Reich, “The bailout to end all bailouts” (9/23)

THE DODD PLAN