The $700 Billion Bailout

           

Today I watched in dismay as the House passed the Troubled Asset Relief Program bill aka the $700 billion bailout of our financial institutions.

I understand the rationale behind the move, even if I  articulate it poorly. The correction of the housing market has generated a host of bad loans and foreclosures, creating instability among financial institutions. This leads to large corporations wisely moving their funds out of banks and into Treasury bills, which of course are backed by the government. But this leaves banks with fewer capital reserves, which means they have less money to loan out.  That leads to less of an income stream for them which only further increases their instability and feeds the cycle. Stay with me now - the lack of funds means that banks have to be extra careful about who gets a loan and in what amount, thus freezing out many average Joes and healthy companies, freezing growth in the economy. Just to put a cherry on top, all this has shaken investors and screwed up the stock market.

Whew.

I still oppose the bill, for all the good that does now (or yesterday for that matter). Believe it or not this is the first time I stand in complete opposition to Dubya - and just as a poke in the eye, it's also the first time many Americans seem to agree with the guy.

This is a plan designed to provide an after-the-fact safety net for investors on Wall Street.  On principle this is wrong. Investing involves both risk and reward, and with the price of fortune comes the chance of losing it all.  No one was volunteering to return  the profits that were created in the boom years that fueled this mess, and it's unreasonable to suddenly change the rules and ask for a do-over. That isn't 'tough love', it's a reasoned and long standing practice. 

Regardless, it is unjustifiable to make the American taxpayer pay for the risks taken by investors, and it is not necessary for the government to do so to stabilize the economy. It's also a dangerous precedent. Even if it's succesful does the government now have the authority to step in and adjust the market when it sees fit? Saying 'yes' once to Washington usually forfeits your right to even be asked the next time, and it wouldn't surprise me if this is the start of the fabled slippery slope.

But what exactly is the government going to do? The bill gives the Treasury unparalleled ability to spend money  without oversight. Quoting section 8 (how's that for a sweet coincidence?) of the proposal: 'Decisions by the Secretary . . . are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.'

I know we're four weeks away from electing a Socialist President, but doesn't that just appall you? This is America is it not? Since when can a government body - especially one that just oversaw the creation of the mess it's going to 'fix - declare absolute, unquestioned authority?

Is the Treasury going to pay (low) market price for the assets, or as Warren Buffet fears  will it fall back on artificially high hold-to-maturity prices? Why doesn't the government just agree to back some of these assets to inspire investors to purchase them? Where is the concrete aid for distressed homeowners (should you believe it wise to do)? Why doesn't . .. oh. Well, it doesn't matter.

Because the government, a single arm of the government, now has the power to decide what to do and we have no say.

I'm also suspicious of how quickly this bill was forced down our throats. Oh, it failed once - less than a week ago - and now we've greeted a  24% increase in our national budget with literal applause.

The pork that lubricated the passing of this bill is just mind blowing. Tax breaks for wool research, for litigants of the ages-old Exxon Valdez spill, for the District of Columbia, for film and television productions, auto race tracks, it just goes on and on. If this bill was so important for the safety and security of our country - which I deny - it should have passed as is, without sweetening the deal.

The cost of this deal is numbing to the senses, an all-out assault on the pocketbooks of the taxpayer and future generation that, again,  represents a 24% increase in the federal budget. And all pushed through in a climate of fear and panic, with no one in power acting with anything resembling calm or rational thought, and everyone perfectly happy to reward incompetent watchdogs with even more responsibility. My God.

In the words of New York University economist Nouriel Rouubini "it is pathetic that Congress did not consult any [economists] that have presented  . . alternative plans that were more fair and efficient. This is a case of privatising the gains and socializing the losses; a bail out and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this treasury scam . . . .'

Amen.

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