21 September 2008

Saying No to the Bailout

Via TPM, Krugman doesn't like the bailout plan. Reading his brief post makes me wonder: where have all the fiscal conservatives of the Republican Party fled to in this time of trouble? Why can't the Treasury and Wall St. work out a plan that guarantees the funders, aka the taxpayers--who are under more financial duress now than at any time in recent memory--some security if the high-risk plan doesn't work?

If the trillion dollar bailout is designed to restore markets by encouraging consumer confidence, then why can't the Treasury come out with details of the plan? Why are Republican lawmakers taking meetings with lobbyists to ensure that the legislature doesn't tack any taxpayer protections to the bill? Not exactly confidence inspiring.

From the WSJ:

The plan offered to Congress also gives the Treasury legal immunity from any lawsuits. "Decisions by the secretary pursuant to the authority are non-reviewable … and may not be reviewed by any court of law or any administrative agency," the proposal says.

The proposal doesn't detail how Treasury would manage the assets, but does give Mr. Paulson the authority to hire private financial institutions to conduct the program, as well as to create other entities to purchase mortgage assets and issue debt.

"Treasury will have full discretion over the management of the assets as well as the exercise of any rights received in connection with the purchase of the assets," the Treasury fact sheet said.
Emphasis mine. Let me see if I get this right. We're supposed to trust the same government that has time and again funneled high-priced privatization projects to favored contractors without oversight, the same government that, as a result of incompetence and croneyism, failed to effectively root out the Taliban and Al Qaeda in Afhganistan, the same government that led the U.S. into a quagmire in Iraq, and the same government that failed to effectively respond when Katrina swallowed New Orleans, we're supposed to trust that government with $1 trillion, no questions asked? And the Treasury Secretary gets to appoint private firms to handle public funds without oversight?

On top of that, Krugman raises the excellent question of price. At what price will the government purchase (on behalf of the taxpayer) these troubled investments? At fair market value, which would obviously be low right now, or at premium or above premium prices in order, as I understand it, to send an infusion through national and world markets, a shot in the arm to restore confidence? The problem there is that falsely inflated premiums, paid to troubled institutions and made with theoretical money for which the taxpayer is on the hook, offer nothing more than another bubble, another illusion, another trick with numbers bound to fail and give way to the harsh realities of fiscal fact. And the fact is that fiscal irresponsibility cannot save us from the consequences of fiscal irresponsibility. We don't call that a rescue, we just call it "throwing good money after bad."

Obviously, to protect American (and global) financial interests, government must intervene. The U.S. government, despite hits it's taken in the past several years, is still the only entity big enough to assert effective might to leverage the markets, unless we'd like to ask China to help. And the taxpayer may have to foot the bill. But all this secrecy can't be the answer. No details, no guarantees, and no provisions to protect the taxpayer. Treasury is willing to gamble only if nobody will ever know what happens to the money, what decisions are made, and nobody, regardless of the outcome of all this, will ever be held accountable.

At this decisive moment we need Congress to step up. We need oversight written into any bill that passes. Yes, we need emergency funding and we need it quickly. But this plan reeks of a short-term fix that will make the next upheaval inevitable and all but impossible to address.

At every turn, at every crisis in the past 7 and 3/4 years, this government has failed the American people. At a glance I'd say it's setting up to do so again. Somebody please tell me why this is the best bailout plan we get.