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The American Bail Out Proposals: Sanders v Bush

by Maryscott OConnor Sun Sep 21st, 2008 at 03:52:47 AM EST


Crossposted from MY LEFT WING

DIGG THIS, please

UPDATE: The Bush Administration has handed in an utterly heinous proposal for the bail out, as I surmised in -- my ruminations on Sanders's brilliant proposal below his text...

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY TO PURCHASE MORTGAGE-RELATED ASSETS

... making Bernie Sanders's proposal all the more attractive and even more NECESSARY a consideration. The Democrats in Congress cannot ignore Sanders's proposal given the outright power grab that Paulson's proposal clearly is.


Sanders Op-Ed: Billions for Bailouts! Who Pays?

09/19/2008

By Senator Bernie Sanders

The current financial crisis facing our country has been caused by the extreme right-wing economic policies pursued by the Bush administration.  These policies, which include huge tax breaks for the rich, unfettered free trade and the wholesale deregulation of commerce, have resulted in a massive redistribution of wealth from the middle class to the very wealthy.  

The middle class has really been under assault.  Since President Bush has been in office, nearly 6 million Americans have slipped into poverty, median family income for working Americans has declined by more than $2,000, more than 7 million Americans have lost their health insurance, over 4 million have lost their pensions, foreclosures are at an all time high, total consumer debt has more than doubled, and we have a national debt of over $9.7 trillion dollars.

While the middle class collapses, the richest people in this country have made out like bandits and have not had it so good since the 1920s.  The top 0.1 percent now earn more money than the bottom 50 percent of Americans, and the top 1 percent own more wealth than the bottom 90 percent.  The wealthiest 400 people in our country saw their wealth increase by $670 billion while Bush has been president.  In the midst of all of this, Bush lowered taxes on the very rich so that they are paying lower income tax rates than teachers, police officers or nurses.

Now, having mismanaged the economy for eight years as well as having lied about our situation by continually insisting, "The fundamentals of our economy are strong," the Bush administration, six weeks before an election, wants the middle class of this country to spend many hundreds of billions on a bailout.  The wealthiest people, who have benefited from Bush's policies and are in the best position to pay, are being asked for no sacrifice at all.  This is absurd.  This is the most extreme example that I can recall of socialism for the rich and free enterprise for the poor.

In my view, we need to go forward in addressing this financial crisis by insisting on four basic principles:







(1) The people who can best afford to pay and the people who have benefited most from Bush's economic policies are the people who should provide the funds for the bailout.  It would be immoral to ask the middle class, the people whose standard of living has declined under Bush, to pay for this bailout while the rich, once again, avoid their responsibilities.  Further, if the government is going to save companies from bankruptcy, the taxpayers of this country should be rewarded for assuming the risk by sharing in the gains that result from this government bailout.

Specifically, to pay for the bailout, which is estimated to cost up to $1 trillion, the government should:

a)  Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers.  That would raise more than $300 billion in revenue;

b) Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and

c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies' stock goes up.

(2) There must be a major economic recovery package which puts Americans to work at decent wages.  Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy.  Further, we must protect working families from the difficult times they are experiencing.  We must ensure that every child has health insurance and that every American has access to quality health and dental care, that families can send their children to college, that seniors are not allowed to go without heat in the winter, and that no American goes to bed hungry.

(3) Legislation must be passed which undoes the damage caused by excessive de-regulation.  That means reinstalling the regulatory firewalls that were ripped down in 1999.  That means re-regulating the energy markets so that we never again see the rampant speculation in oil that helped drive up prices.  That means regulating or abolishing various financial instruments that have created the enormous shadow banking system that is at the heart of the collapse of AIG and the financial services meltdown.

(4) We must end the danger posed by companies that are "too big too fail," that is, companies whose failure would cause systemic harm to the U.S. economy.  If a company is too big to fail, it is too big to exist.  We need to determine which companies fall in this category and then break them up.  Right now, for example, the Bank of America, the nation's largest depository institution, has absorbed Countrywide, the nation's largest mortgage lender, and Merrill Lynch, the nation's largest brokerage house.  We should not be trying to solve the current financial crisis by creating even larger, more powerful institutions.  Their failure could cause even more harm to the entire economy.

In my view, if Obama were to sign on to this proposal by Bernie Sanders, the inherent wisdom in its sensibility and populism would put him over the top and leave McCain in the elitist dust where he lives.

My instinct is that Obama will not, however. I get the feeling Sanders issued this proposal in the wee hours precisely because the congressional leaders who met with Bernanke and Paulson are hammering out their own proposal as we speak, and Sanders wanted to get this out there first -- because he knows there's not a chance in hell something this reasonable will be on the table.

No, we'll likely be getting a proposal that shafts the vast majority of the American people, and Obama will be asked to sign his name to it or seem the traitor -- the first twist of the knife by his own party members, the first not-so-gentle reminder to him and to us of just who is who and what is what. NOT so fast there, kiddies, with that Hope and Change schtick. Just so you all remember, when you look at those polls and start thinking about all those wonderful reforms you'll be wanting to pass when President Obama takes office -- this is OUR America, and President Obama is, after all, Our Man.

But  perhaps Sanders released it on the off chance that Obama has the derring do to take the sort of risk with the sort of pay off this act would entail?

Because... consider it. This proposal is not outlandish or unreasonable. It is not in Dennis Kucinich- Department-of-Peace-territory. This proposal is eminently fair. This proposal has "wildly popular with the American people if it ever saw the light of day" written all over it.


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by Maryscott OConnor (myleftwing@gmail.com) on Sun Sep 21st, 2008 at 03:53:01 AM EST
and it hits all the major points we've been discussing here ("too big to fail", keynesian investment, fairness, tax increases, etc...)

But .... it's socialism! It cannot be a good thing!

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sun Sep 21st, 2008 at 04:31:44 AM EST
Compare it to the fascism proposed by Bush and Paulson.

See Krugman's relatively mild assessment; I'd have thought he'd be raising holy hell. Bush fatigue, indeed.

If I can't rant, I don't want to be part of your revolution

by Maryscott OConnor (myleftwing@gmail.com) on Sun Sep 21st, 2008 at 05:55:24 AM EST
[ Parent ]
The opening paragraph
I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.
is as far from mild as an Economics Professor is going to get in polite company.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Sun Sep 21st, 2008 at 07:10:59 AM EST
[ Parent ]
Of course its a good proposal but the Dem Congressmen are scared to death if they dont do something right away; they will be in trouble in their districts and Sanders proposal would take many weeks or months to have the correct language without loopholes.

It is no surprise the meltdown happened 6 weeks prior to the election as Paulson and friends knew it would give them the leverage to get something passed immediately and with power vested in Treasury.

What the Dems should do is say we will pass an emergency relief measure which will be expiring at the end of 3-4 months but will give liquidity to the credit markets but any permanent solution to the banks and anything else proposed by Paulson will be delayed until the new Congress and President are elected. There will be no definitive rescue and workout plan unless the American taxpaper and homeowner are rescued which will include a total rewriting of the bankruptcy bill which was passed by Congress but bought by the finance sector. Everything else Sanders has proposed will be incorporated in an overall bill after the election. Another caveat the Dems should require in the extensive bill should be the indictments of the criminal and fraudulent people including the CEO's who knew they were selling fraudulent investments.

And a total reregulation of the finance industry. Regardless of what the markets will do if Paulson doesnt get his way.

What no one has said is Paulson very well may be a crook just as the entire apparatus of corrupt government and the finance sector who corrupted it. And Bernanke hasnt been correct in anything he has done
so who can trust these guys.

by An American in London on Sun Sep 21st, 2008 at 04:23:19 PM EST
[ Parent ]
Jerome, it is unlikely that we will see socialism in America for quite some time. Since these kinds of economic crises can be paid for by the American public, it is unlikely that we will see FDR social democracy for some decades to come. Friedman lives even among the so-called liberal Democrats, and if not the Republicans, it will be the Democrats which will keep on the track of free market Friedman economics.

Bob Rubin is Obama's chief economic advisor, and McCain has K Street lobbyists dominating in his campaign. The average American cannot win in a no win situation.

by shergald on Mon Sep 22nd, 2008 at 03:13:13 PM EST
[ Parent ]
This is a bullshit letter. Sanders does not repudiate "bailout." He can't even acknowledge what it is the government is purchasing that justifies a "surtax" on the top centile. It's just bullshiit purchasing RMBS and CMOs, if < 50% of mortgages result in foreclosure anyway.

The securitized mortgages are dead letters. Where's his story about supporting US public as mortgage origination values deflate? Why not set a "floor" at arbitrary percentage at that basis rather than MBS price per share to clear the secondary market. That was the original mission of FRE, FNM --minimum risk rate and assurance. The only losers in this weeks "crisis" are firms who rely on RMBS trading to capitalize their operations -- no real productive value.

Investors (including passives like 401(*) participants --defined contributors in employer and pension plans) pay by accepting their losses on securities income. End of story. US public doesn't pay investors par by accumulating public debt, then attempting to recover increasing interest payments by marginal tax rate increase! And this ...

c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies' stock goes up.

Dividends? Does he mention actual dividend payments to each and every "shareholder." I didn't think so. See, after we've commited treasury debt for equity in a REIT valued at ZERO, whatever dividend is paid to Treasury's general fund from which Congress appropriates. Same goes for interest and principal corporate bonds (CMOs) collateralized with bullshit RMBS. Otherwise, US is waiting years for private sector to repurchase stocks from the Treasury in order for US public realize some nominal capital gain which, again, is deposited with Treasury general fund. And when THAT happens, you can count on US public having proved its ability to service their inflated RE. Then Congress will authorize funding of discretionary programs to build public works and universal health care. Everybody benefits. Yeah.  

Sanders can't even bring himself to commit the words Glass-Steagall to his plan to restructure the finance industry? Oh fuck that "brilliance."

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 21st, 2008 at 07:09:12 AM EST
It is a bail out. Compare it to the Treasury Secretary's and tell me it is not infinitely preferable.

I'm sorry, you have once again been given a choice between two evils.

It was never going to be the sort of brilliance you wished. It is COMPARATIVE brilliance. It is RELATIVE brilliance. Pardon my inadequate rhetoric. I was THRILLED to see this, knowing full wel what would be offered in its stead.

Check out the Bush Administration's disastrous blackmail -- and blackmail it is; if Obama refuses it, he is doomed. If he accepts, WE are doomed.

If I can't rant, I don't want to be part of your revolution

by Maryscott OConnor (myleftwing@gmail.com) on Sun Sep 21st, 2008 at 08:36:35 AM EST
[ Parent ]
It's the same proposal embroidered with bullshit. "Two evils" my ass. The US voter is doomed, because they continue to vote for the same representatives every two years expecting a different result. They do so persuaded by MSM commentators that 1 of 2 is "comparative brilliant" representation of a whole of bullshit.

Second, Obama hasn't refused jack shit proposed by Paulson Geithner LLC. Read it. Senate Democrats have given him cover ever since he declared his candidacy. Virtually every "housing" related bill enrolled since Bush/Bernanke's presser Aug 2007 is engrossed by H.R.3221. There are no coincidences. But you can play shock 'n' awe of Paulson's congressional debrief til the cows tip. Obama's your senate's shill. And that does not make a McCain presidency a worse proposition, when all the DP "strategists" will bray is, "loose canon."

Third, GAO 1996 Financial Audit 1994, 1995 Financial Statement (pdf). Same fucking operating strategy and conditions EXCEPT this time around non-depository firms are covered.

Grow up and break ranks. I already clean my own house.

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 21st, 2008 at 10:09:52 AM EST
[ Parent ]
Talk about regulation second, first solve the immediate problem though, and given the alternative, he's getting everything right.

And no need for Glass-Steagle if you nationalise the institutions and keep them that way...it would be a completely different regulatory framework. Glass-Steagle is yesterday's paradigm, tomorrow's may call for something entirely different.

Bernie knows socialism, and he knows socialism for the wealthy, paid for by everyone else, when he sees it.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Sep 21st, 2008 at 09:52:10 AM EST
[ Parent ]
Talk about regulation second, first solve the immediate problem though

The "immediate problem" is the answer beggaring a truthful question. Is it (1) mortgage lenders have no income? or (2) investment banks have no "liquidity"? The question determines whether the US government's trust obligation is to finance primary or secondary market.

And no need for Glass-Steagle if you nationalise the institutions and keep them that way

The concept of nationalization is meaningless in the US as you very well know from your own experience. Further, one has only to read history and the law to confirm that federal (national) government authority exists to enforce private property rights in every market. This particular financial panic will not in itself divert that political mandate, especially given material concentration of rights in corporate entities.

This is the regulatory goal of the FRB Paulson published in March, citing legal authorities extending into the 19th century. The teal bands represent national licensure supervised by FRB/Treasury agents, given primacy of FHC rights in USC and FRB exclusive supervision of FHCs in the global capital market. H.R.3221 engrosses those facilities.

That is to rationalize core banks and implement US Basel II, Tier I conforming assets. That is to market US private debt. Now if you believe there is any financial or social benefit due US "taxpayers" resulting from this restructure, please share. I think Sanders is falling for a AUMF fake, again.

Oh, wait. He did not vote for either. So I'm not about to presume what he thinks he knows about "socialism" in Vermont or for the US.

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 21st, 2008 at 10:51:49 AM EST
[ Parent ]
there are no coincidences
Anyway, Exchange Stabilization Fund use is supposedly limited to short-term, ForEx lending. The proposed financing for domestic "Troubled Asset Relief Fund" is entirely extraordinary. It implies some of the funding is for foreign domiciled financial firms or central banks.

voila

Treasury Secretary Henry Paulson said Sunday that foreign banks will be able to unload bad financial assets under a $700 billion U.S. proposal aimed at restoring order during a devastating financial crisis.

"Yes, and they should. Because ... if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said on ABC television's "This Week with George Stephanopolous."

Treasury FAQ, 20 Sep

H/T Calculated Risk

Diversity is the key to economic and political evolution.

by Cat on Sun Sep 21st, 2008 at 11:43:24 AM EST
[ Parent ]
Add in Paulson's connections in Beijing....and there are no surprises here.

OTOH, there is more than one way to skin a cat, and given the likely ways our "opposition" on the Democratic side are going to express that opposition, I'm going to cut Sen. Sanders more than a little slack.

There's no reasonable solution to this mess other than either a very deep (Argentina-style, -20% GDP contraction over a couple of years) recession or a decade of Japanese stagnation accompanied, unlike the Japanese, by inflation and a noticeable secualr decline in living standards across the board. That's what's in store and really I don't think there's any getting 'round that.

Given this, the fact there's no reasonable economic solution, we are left to the way to politically frame the situation in a way which sensitizes the greatest amount of people to the real reasons they're about to get fucked.

That's the import of Sander's letter. It's an ideological statement, not an economically logical one. And one that bears repeating, though I'm sure we can't count on Schumer et al to even say parts of it.  

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Sep 21st, 2008 at 04:35:20 PM EST
[ Parent ]
Adding, if you listen carefully to Paulson when he did up Fannie Mae and Freddie Mac, it was the same thing.

Scroll to Paulson talking about the Fannie Mae bailout.

"The government is going to be paid before the shareholders get a penny..."

But...

"subordinated debt holders should come ahead of the taxapayer" (at about 13:25)

Now, who do you suppose he's thinking about?

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Sep 21st, 2008 at 05:09:02 PM EST
[ Parent ]
H/T calculatedRisk who notes, "This means more oversight and a changing business model."

Release Date: September 21, 2008
For release at 9:30 p.m. EDT

The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.

To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve's primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF); the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch. In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.

CR is incorrect. The result is neither more oversight nor a change in the firms' business models. Being financial holding companies (per GLB Act) both firms were supervised by the FRB and the SEC and, informally, the Presidents Working Group (PWG a/k/a "the Plunge Protection Team"). But Paulson's "Blueprint" does explicitly seek expansion of the PWG. The latter observation implies only that regulators will recommend that the firms acquire state- and national-chartered banks and perhaps apply for charters for some of their existing banking and trust subsidiaries. Further, this measure does not revoke firms' privileged brokerage licenses. Rather, it cements market risk in depository institutions --all of whose undercapitalized operations were regulated by the FRB.

Recall: currently, - $122B non-borrowed funds of the reserve bank system. The FRB is shifting cost of banking to Treasury and revenue generation to debt marketing entirely.

Diversity is the key to economic and political evolution.

by Cat on Mon Sep 22nd, 2008 at 07:45:13 AM EST
[ Parent ]
Can you cross-post that to the thread in today's salon?.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Mon Sep 22nd, 2008 at 07:51:46 AM EST
[ Parent ]
and hits on all cylinders.

Unfortunately, it will fall on deaf ears in the Democratic caucus - Schumer is bought and paid for by various Wall Street interests, Dodd by the Insurance companies and Biden by the Credit Card companies...

PS - I don't think Sen. Sanders would call himself a liberal ;-)

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Sep 21st, 2008 at 09:40:00 AM EST
Backing the truck up to the larger picture what other past non-event has been in the works for several years.

The North American Union that doesn't exist!
47,400,000 doesn't exists!
http://www.google.com/search?hl=en&q=North+American+Union&aq=f&oq=

by Lasthorseman on Sun Sep 21st, 2008 at 07:39:06 PM EST


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