Thursday, October 2, 2008

The Bailout Round 2: The Senate Gives Henry Paulson Your Money

Last night, another bill that still relies on the same Paulson "Give me lots of money, I know what I'm doing" model passed in the senate. It still has to go to the house, and I'd guess that there will be enough pressure on the Republicans to combine with their corporate democrat brethren to pass this thing. Hey, it's a massive giveaway to Wall Street, what's there for a Republican not to like?

Probably the most depressing about this is that few people pushed harder for this bill's passage than Barack Obama. It's not really news to anyone who reads this site that Obama has a crap-tastic group of economic advisers, so it wasn't him agreeing with this discredited ideology that shocked me. It was just strange to see the next president of the United States actively whipping votes for something that very well could end any of his domestic proposals before he's even taken office. I'm not expecting him to do the right thing, but I didn't think he'd support something that would so obviously undermine his presidency.

To put this in perspective, for as much of Barack goes on about what we could do if we weren't spending money in Iraq (rightfully so), those costs come to around 584 Billion dollars and rising.

This bill calls for 700 billion dollars.

Of your money.

Given away.

To Henry Paulson.

That leads us to the logical question: Should we trust Henry Paulson?

Paulson, six months ago:
Chris, I've got great confidence in our financial market, our financial institutions. Our markets are resilient. They're flexible. Our institutions, our banks and investment banks, are strong.
And then there's this: (From the interview with Johnston linked below)
Well, who is the leading company inventing and promoting these toxic products, and getting people into them? Goldman Sachs, and it was at the time that Henry Paulson was running Goldman Sachs that this was going on. So, even if you assume his heart is pure and all he is doing here is what he thinks is the best thing to do for the republic, you have to look at where he came from.

Now, they allowed a Goldman competitor to fail, Lehman, the only firm that they said they would nothing for. Then, they decided to rescue AIG, the insurance company, on the too big to fail theory -- who owes Goldman $20B, half its net worth? AIG. And who is the only non-government person in the room, according to The New York Times, when they made that decision? The current chairman of Goldman.

With the Secretary will now be imbued with the power to buy assets - he doesn't have to have auctions; he doesn't have to pay the lowest possible price. He can even buy assets from foreign governments and foreign central banks, so we're going to have American taxpayers bailing out Dutch banks and Luxembourg banks. There's no question being raised about, hey, these guys all were running huge off-shore operations, to not pay taxes in the US; they didn't run to the government of Bermuda and the Cayman Islands for help; they ran to the government whose system they abused. Why aren't we saying a condition of getting in the bailout is, you will, within five years, repatriate all your assets and pay taxes on them from the Cayman Islands and Bermuda. No-one's even mentioned that except me. And one tax lawyer that I know.

In buying assets, the Secretary does not have to buy a single asset from Goldman to rescue Goldman. All he has to do is buy assets from parties who, if they defaulted, would bring Goldman down. We ought to have a requirement that the counter-party be disclosed in every one of these cases so we make sure this isn't a bail-out of Goldman by its former chairman. Those are the kind of fundamental integrity questions that aren't on the table, and by the way, that oversight board - it has five members. One of them is the Treasury Secretary, who supposed to oversee his own operations; but there's no inspector general.

He's the one who gets your money. That's not a punchline.

And that money doesn't get pulled out of his ass either. It comes from health care reform, infrastructure improvements, better schools, investment in renewable energy and anything else Obama wanted to get done during his presidency.

The only positive here is that McCain voted for this bill as well, so at least he can't attack Obama from a (gag) populist angle. That would have been a pretty mavericky political maneuver, my friends.

Two great interviews from Glenn Greenwald on the Bailout:
-Notre Dame Professor Richard Sheehan
-Former New York Times business reporter David Cay Johnston

From Johnston's interview:

GG: And you certainly see the by-product of that. Last question: as you know, I did a lot of work on the FISA and telecom amnesty issue, which was being pushed by the same establishment, the same set of corporate lobbyists who wanted this legislation - very much in their interest - and there was a moment where it looked like it was going to be derailed, as a result of public anger. Lots of people celebrated. They came back, they tinkered with the bill a tiny little bit, and the establishment and the corporate lobbyists ended up prevailing.

Do you see the same thing happening here? Do you think that a slightly modified version of failed the other day is about to pass as a fait accompli, or do you think there's a prospect that it can be derailed at this point?

DJ: You've identified one of the great political tricks of our era. Whether you believe we should have this bail-out or not, it's very clear what's going on here. You make a minor change in something to appeal to a small constituency, you then claim you have really reformed this and fixed it to solve the problems, and then you get 90% of the bad stuff that you wanted. And these are issues that will always be here. Whether it's the government spying on you, or how the government spends your tax dollars, these are issues of which a free people must be vigilant about at all times if they wish to remain free.

GG: Indeed. And so, it sounds as though you believe, although it's hard to say for sure, that a bail-out plan of the type that just recently failed, and not that far away from the plan Paulson originally proposed, is imminent, and that this donor class, as you called it the other day, at the end of the day will probably prevail. Is that--

DJ: It's interesting. It will pass the Senate and it will pass the Senate overwhelmingly. What will be interesting to see is whether those relatively small number of Democrats and big majority of Republicans in the House stick by their guns. I assure you that right now, carrots and sticks are being heavily applied to anybody who's on the margin, and they've only got to move 16 votes to get this thing passed. Think about that. Sixteen votes in the House change, will indebt us beyond belief. Four or five years ago I broke the story in The New York Times that Bush administration killed a plan for $12 million of additional spending to go after Osama bin Laden's money, so we could trace any effort by him,

GG: That's 12 million with an 'm', right?

DJ: With an 'm', that's exactly right. And the Bush administration killed this proposal, saying, the American taxpayer could not afford this burden. I kid you not. You can go read my story in The New York Times about in March 2004. The American taxpayer cannot bear this burden. Well, the cost of borrowing $700 billion would equal in the interest every three hours. Twelve million dollars in interest every three hours. So, we can't afford to try and make sure we trace Osama bin Laden's money, if he tries to set up another plot - which he's surely doing - but we can afford $700B to bail out Wall St. That is a very, very curious public policy.

It's worth a call to congress to tell your rep you oppose this bill. Just think of it as $2300 (cost per taxpayer) coming directly out of your pocket and going right into Paulsons'. Don't worry about it though, I'm sure he has your best interest at heart.

The capital switchboard is (202) 224-3121.

Call, ask for your house representative, and tell them how you feel about the bill.

The questions I asked:
"Why should we give Henry Paulson 700 million dollars of our money when he has been wrong in predicting every aspect of the current financial crisis, and personally contributed to the crisis by engaging in this risky behavior as CEO of Goldman Sachs?"

"Since the Bush administration has mismanaged every problem or crisis they've faced over the last 7 years, why should we trust to get it right this time?"
They are always very friendly, and it never gets old telling Cardin's aides that crap like this is the reason I voted for Mfume in the primary.

Yeah I'm bitter, so the fuck what?

The house doesn't vote on this thing till tomorrow, so there's still time. In the end, politics comes down to pressure and who your representative fears most. Do they fear the wrath of the voters putting them out on their ass (that whole democracy thing) or do they fear a backlash from big business, the media, Bush, Obama, McCain, and the leadership of both parties.

Make your voice heard.


  1. My only guess about Obama's support is that he's confident of a win in November and thinks he'll have direct control over most of the disbursement. I think only $250B of the money would be available to Paulson immediately, meaning that the bulk of the cash would be spent by the Obama administration.

    The thing is, I can't make sure of this because I can't find the full text of the senate bill! Here's the House one, though. The bit I'm talking about is Section 115.

  2. Er, that is, "Division A, Title I, Sec. 115." Bluh.

    Or just do a search for "250," it was the first thing that came up up when I did it. Or "Graduated Authorization to Purchase."

    Also, I think that is the senate version.

  3. Good point about the 250 Billion part. I think the way it goes is that they get 150 billion more each time they ask for it, and that does make sense that Obama would want it in his administration. Will there still be Paulson or will he try to force him out? Also, I heard an conference call with Paulson where he basically said that he could withdraw the 700 billion now if he wanted, and that all the protections were worthless.

    Found it,
    here it is

    That's pretty damn scary if it's true, and since he was bragging about it, that's not a good sign.

  4. Good fucking christ: "We do not want to disinscentivize high quality, good companies from participating." I do wish I could recognize Paulson's voice better, or they had a higher-quality recording going.

    In any case, I guess we should know better than to rely on the rule of law when dealing with these people.

  5. Yeah, the recording is pretty crap,
    this link
    has more of a recap than the other diary.

    We can expect the Bush Administration to break the law when it serves them. What amazes me is that Paulson is outright saying, while the bill is still being passed, that the GOOD news about the bill, is that they will be able to ignore almost all provisions. It reminds me of last summer with the Peru trade vote, where the chamber of commerce actually came out and said, don't worry about this deal, none of the provisions are enforceable. Not only are they breaking the law, but the media is so complacent that they can publicly state their intentions of not following the law, and it means fuck all.

  6. nice post. thanks.