Friday, September 26, 2008
Does anyone outside of Congress and their enablers really believe that Paulson, Bernanke and Bush are going to accept a bailout that does anything other than saddle the government with the bad debt currently held by global financial institutions? If you have visited this blog recently, you are aware that the proposal is based upon the concept of paying financial instiutions a price for these debt instruments substantially greater than the market one in order to recapitalize them.
Democrats also heard from Laura Tyson, a senior fellow at the Center for American Progress, who advocated for moving legislation that is being negotiated by leaders of the two parties and the White House. Tyson, who headed the Council of Economic Advisers under President Bill Clinton, is dean of the Haas School of Business at the University of California-Berkley and serves on several corporate boards, including investment banking company Morgan Stanley.
Tyson got an earful from a number of liberals including Rep. Peter DeFazio, D-Ore., who advocated a new government fee of .25 percent of every stock transaction to ensure that the government can recoup funds to pay for the aid that it provides to lenders. “If this is truly such a catastrophe, I don’t see how anybody can object to a one-quarter of one percent fee,” DeFazio said. Others who attended the session said that proposal seemed to be gaining little traction.
Tyson rejected DeFazio’s idea and said she believed the government could recoup any funds it pays for troubled investments “deal by deal,” by negotiating terms for financing rather than charging a fee on each transaction.
Pelosi also rebuffed any such short-term step, although she said that future measures may be needed to cover any losses the government ultimately suffers from the acquisition of troubled assets.
“I’m optimistic that it will pay for itself and make money, especially if we take an equity position that makes these companies healthy and they come back and put some money back to the Treasury,” Pelosi said. “That’s a down-the-road thing. But there are some people that seek pay-fors now. I don’t think that position will prevail.”
Unlike Pelosi, Kos gets it, he thinks that the stock transaction fee proposed by DeFazio could be a good mechanism for paying some, and possibly all, of the costs of the bailout. As he correctly observes, Wall Street is culpable and we are not. Many on Wall Street profited obscenely, we did not. Furthermore, such a fee has been applied with success on numerous occasions throughout American history. And, according to Keynes, the fee has the effect of mitigating the predominance of speculation over enterprise. No matter, the Democratic leadership isn't interested, perhaps, because, since the beginning of the Clinton presidency, they have participated in a bipartisan consensus that actually seeks to subsidize such predominance.
Likewise, does anyone really believe that the equity participation advocated by Pelosi is anything other than a means of seducing the public with the illusion of future repayment? Nancy Pelosi will be remembered for her willingness to politically facilitate the implementation of Bush policies that the Bush administration lacked the ability to effectively design and promote by itself. Of course, the fact that Laura Tyson, a Clintonista who headed the Council of Economic Advisors during Bill's presidency, is insistent that the public pay the bill is utterly predictable.
There is good news, however. Yesterday, no deal was reached, preliminary reports to the contrary, as conservative House Republicans sabotaged it. Despite the renewed efforts of the President and congressional leadership to put together a compromise proposal by the end of the weekend, they remain opposed to any proposal based upon the Paulson plan. Conversely, the Democrats are willing to work as long as required, as Pelosi expresed cautious optimism: we hope that it doesn't take long. Naomi Klein and other progressive opponents of the bailout have aptly characterized the willingness of the Democrats to push through such hastily crafted legislation in response to a public emergency manipulated by the White House as a financial 9/11.
Accordingly, we shouldn't be surprised that the Democrats are insistent upon the urgency of passing a bailout, even though the Treasury itself acknowledges that the publicly released $700 billion price tag was not based upon any particular data point, it was just pulled out of thin air. As horrible as it is, it is pretty predictable given the enormity of financial services industry contributions to prominent Democrats, including Obama ($22.5M) and strategically placed House and Senate figures on banking and financial services committees like Chris Dodd ($6M), Barney Frank ($720,000) and Paul Kanjorski ($755,000).
Fortunately, the Democrats are demanding a majority Republican vote in support of the bailout for political cover, and Republican leadership still can't deliver it. Curiously, conservative Republicans seem to be the farthest removed from the pressures of the post-9/11 legislative environment with their confident assurance that we have enough time to thoroughly consider any proposed legislation to deal with the crisis. We can only hope that the red/brown coalition of liberal Democrats and conservative Republicans that derailed the budget deal of 1990, came agonizingly close to defeating NAFTA in 1994, and, more recently, stalled immigration reform in 2007, holds firm enough to kill this measure. They will have to resist an extraordinary amount of pressure to do so.