MINK column: Bailout plan doesn’t address real long-term problems
Let’s grant that the precarious condition of the country’s financial system requires government intervention on a massive scale. The hands-off-business Bush administration has confessed as much, and no responsible observer claims otherwise - although there is considerable disagreement about the right way to do it.
But in the heavy-breathing scramble to nail down pieces of a trillion dollars of the public’s bailout cash, the big-money men and women and their go-to guys in Washington seem to be losing sight of why the federal government has to step in.
It isn’t because some of the most powerful financial companies in the world have been rendered powerless by their own bad business decisions. It isn’t because nobody can figure out whether there’s any value at all in some ridiculously complicated investment options that once were regarded as oh-so-clever. It isn’t even because last week the market for so-called commercial paper teetered on the brink of drying up, almost taking America’s day-to-day business operations with it.
No, the reason the government of the United States has to act is that the financial crisis threatens the welfare of the people of the United States, and it’s our government’s job to protect us.
In other words, what matters in the proposal to loot the U.S. treasury - not to put too fine a point on it - is the public interest. Not corporate interest, not Wall Street interest, not market interest, not investor interest, not political interest. The public interest.
The immediate goal is to find the least painful path through the crisis and get back to business as usual as quickly as possible. But let’s not fool ourselves; we have been smacked upside the head by a new reality:
• One of America’s five investment banks was forced into bankruptcy.
• Two more sold themselves to other companies at fire-sale rates (and one needed government backing to manage even that).
• On Sunday, the two remaining investment banks, one of which was founded 139 years ago, declared that they are changing their fundamental business identity. On Monday, one of those two announced it was selling 20 percent of itself to a Japanese bank.
• The two principal institutions that assure Americans’ access to home mortgages had to be saved from collapse by a government takeover.
• A U.S.-based international insurance giant, the essence of whose business is assessing risk, became such a risky proposition that it had to trade an 80 percent ownership stake to the U.S. government in exchange for an $85 billion bailout.
A headline in Saturday’s Wall Street Journal referred to “The week that changed American capitalism.” Change, indeed. It’s all well and good for us to get back to business as usual; it’s a short-term necessity. But the longer-term reality is that the definition of “business as usual” has become “spectacular, dangerous failure.”
By the time Treasury Secretary Henry Paulson Jr. and Federal Reserve Chairman Ben Bernanke testified before the Senate Banking Committee on Tuesday (the House gets them on Wednesday), the administration’s sketchy bailout proposal already had been modified in discussions with congressional leaders of both parties to include monitoring by an independent oversight board.
There seems to be agreement, too, on the need to add provisions to give taxpayers the right to ownership stakes in some companies that get bailed out of their bad securities, depending on how much money’s involved.
Bernanke testified Tuesday that they’re still figuring out exactly how the government would set prices on and buy so-called toxic securities of unknown value. But in the end, he explained, the government would acquire things that eventually would have value and would be sold back into private hands - with the proceeds returned to the treasury.
Given this administration’s rich track record of incompetence, abusive no-bid contracting, cronyism and responsibility avoidance, legislators need to make sure the plan also includes safeguards against the staggering opportunities for conflicts of interest.
In the long term, however, it’s not a matter of saving the financial system; it’s a matter of changing the financial system to better serve the interests of the American people and protect them from the inevitable inclination of big-money players to try to game the system in their favor, consequences be damned.
Paulson doesn’t seem to believe that. His testimony Tuesday made several references to what he called the “root cause” of our problems: housing and mortgages made to people who couldn’t afford to them.
But that’s only the tiny tip of the iceberg, as seasoned observers have been warning - in some cases, for years. “With all the discussion about underwriting standards for home mortgages,” Peter R. Fisher wrote in Saturday’s Washington Post, “it is more than a little odd that we have been analyzing the crisis in our financial system for more than a year and nobody has spoken about underwriting standards for lending to hedge funds or structured investment vehicles or real estate investment trusts or collateralized debt obligations or broker-dealers or even to banks themselves.”
It’s the billions lent to buy and sell those supposedly sophisticated investment inventions, emphasized Fisher, a former Bush administration senior treasury department official, that’s threatening to freeze the credit markets.
The point of Fisher’s opinion piece was foreshadowed by, among many other high-profile alerts, a lengthy 2006 analysis in Business Week titled “Inside Wall Street’s Culture of Risk.” America’s investment banks - led by Goldman Sachs, whose chief executive starting in 1999 was Henry Paulson - had been getting deeper and deeper into riskier and riskier and more and more opaque investments. The companies had hired “many of the greatest mathematical minds in the world to create impossibly complex risk models,” the article noted.
But when it came to weird investment securities based on mortgages, the emphasis turned out to be on the “impossibly” part.
As David Einhorn, the controversial head of the Greenlight Capital hedge fund, put it in a widely circulated presentation to the industry’s “Grant’s Interest Rate Observer” conference in April, “. . . the investment banks outmaneuvered the watchdogs.” Indeed, the watchdogs had allowed the big securities companies to inflate the values of their holdings and reduce the amount of money they were required to keep on hand - even as they were borrowing outlandish sums of money.
But Paulson, who left Goldman in July 2006 to become treasury secretary, was calling for more of the same as recently as March. His long-term proposal for a new regulatory structure would have loosened regulations - not strengthened them - on creating ever weirder, ever more complicated, ever riskier investment securities.
There’s no real choice but to let Paulson lead the response to the current short-term crisis, albeit with close oversight. But to fix the nation’s long-term financial problems, America will need someone more committed to protecting the public interest than to keeping faith with a broken system.
[Paulson and Bernanke at the Senate Banking Committee last spring. Photo by Shawn Thew / EPA file]
Eric Mink was the commentary editor and an oped columnist for the Post-Dispatch from 2003 until January 2009. Before that, he was television critic at the New York Daily News and at the Post-Dispatch. During the 1980s and '90s, he also was a morning show regular on the various St. Louis radio stations that employed J.C. Corcoran. Mink was born in St. Louis in the previous century and hopes subsequent generations aren't too ticked off about it. He is proud to be a member of the University City High School Hall of Fame and makes no apologies for being what is known in the pet trade as "a cat person." 
Re: Freddie Mac and Fannie Mae
CONTINUATION OF THE BUSH ADMINISTRATION WAYS!
Rick Davis, John McCain’s Chief Campaign Manager, it has been learned today after much denying by both McCain and Davis that there were no longer any connections between Freddie Mac and Rick Davis, come to find out, it was a LIE!
HYPOCRISY and OUTRIGHT DISHONESTY!
McCain stated there were no longer any lobbying ties between his firm and Freddie Mac, but, it has been learned that Rick Davis’ firm was still being paid at a tune of 15K per month by Freddie Mac but with no work being done.
http://www.nytimes.com/2008/09/24/us/politics/w24davis.html?hp
BY THE WAY, GREAT COLUMN!
“Given this administration’s rich track record of incompetence, abusive no-bid contracting, cronyism and responsibility avoidance, legislators need to make sure the plan also includes safeguards against the staggering opportunities for conflicts of interest”
All administrations, all Eric. Government at all levels have been failing the people for years. The situation today should be no surprise to anyone. Congress told the banks to extend loans to people who could not really afford them. Probably because the government saw a reveune stream from property taxes they want to take advantage of. This will get worse before it gets better. Soon, commercial loans and then consumer loans will start to fail. Throw on some unemployment and what do you have? Recession, possibly depression for a while.
The author of the original article does not understand how the economy works, or does not work.
The author is proposing that the government watch finances, is tantamount to having a fox to watch the chickens.
D. Walker, want to tell us about Barney Frank’s and Obama’s relationship to Freddy Mac, and Fanny Mae?
If I read one more misleading analysis of the crisis without one mention of any names such as Barney Frank or Chris Dodd mentioned I am going to puke. Does anyone remember that the Democrat geniouses took over in 2006 to save America with their most ethical and hard-working Congress in history?
All the so-called journalists have become nothing but propaghandists for the Obama campaign - not my words but those of:
http://www.gopusa.com/commentary/tblankley/2008/tb_09242.shtml
Read for yourselves!
After the government helped railroad barons pillage $ millions the taxpayers were left with Conrail and Amtrak. The moguls and politicians remained rich and the taxpayers are still paying.
The only difference in finance is that this time we’re talking $ trillions. Both Democrats and Republicans have created the policies that distorted the choice/consequence; success/failure; and supply/demand mechanisms of the free enterprise system in finance, agribusiness, energy, and most other aspects of American life.
The false economy created by Congress and orchestrated by the Fed prevented the market’s natural selection that would have culled the reckless lending that created the bubble we now see bursting. Both national parties shunned government oversight duties in favor of bureaucratic manipulation for political and financial gain. Follow the money on both sides of the aisle.
People still try to avoid the reality that we can’t have it both ways. When government expands beyond its proper role of protecting the public to a role of manipulating the markets and economy it disables the free enterprise system. For nearly a century the government worshipers and manipulators have been steadily destroying the capitalist economy and the foundations of the U.S. dollar in favor of Marxist theory.
Instead of citizens choosing where to invest our own resources, the government taxes our production and funnels the proceeds to special interests through grants, subsidies, bailouts, and bureaucratic overhead. Instead of jail time, boardroom criminals receive protection from their political cronies. Democrats and Republicans, alike, receive campaign support for re-election, and lobbying jobs if they fail.
The time for denial is over. Despite the founders’ warnings we have become a statist nation dependent on government programs for the means to exist. If you disagree, consider what remains in your life that is not heavily influenced, if not totally controlled, by government activities. How many of your own “special interests” rely on government involvement?
Welcome to the Great Society comrades.
— A CENTRIST
“Does anyone remember that the Democrat geniouses took over in 2006 to save America . . ”
Do you remember that the Republicans controlled Congress for the 10 years before the Democrats got their slim majority in 2007, a majority too small to overcome blockage by the Republicans much less veto’s by the decider?
“All the so-called journalists have become nothing but propaghandists for the Obama campaign - not my words but those of:” - The McCain talking points
A link to GOPUSA? and Tony Blankley, that well known independent journalist that whines loudly for the McCain campaign.
Fact is the McCain campaign has out-and-out lied repeatably even continuing after they have been debunked. The press is doing their job making sure the public knows the truth. So, the McCain’s have turned up the rhetoric on the press but the only thing it is doing is
killing John McCain’s credibility
Blaming this on Bush is the typical half-truth I’ve come to expect of people like Eric Mink, Barak Obama, and D. Walker. In fact, these problems have root extending back long before Bush took office. And of course, underlying Mink’s comment that “America will need someone more committed to protecting the public interest than to keeping faith with a broken system” is the assumption that only an Obama administration would bring that needed reform.
I’m all for free market capitalism. The problem is, we’re about to take a BIG step away from that. In a capitalist system, companies take risks, and they profit or lose as a result. If they lose a lot, they might go bankrupt. No problem, except for the owners and employees of the bankrupt firms.
But now, Messrs. Paulson Goldman-Sachs, 1974-2006) says we have to dish out a trillion dollars in taxpayer money - by comparison, that’s 1/3 of the federal budget for a year, or more than 10% of the national debt accrued since we became a nation - to avert a crisis. My gut feeling here is that it will to little to avert any coming economic crisis, but will do much to avert the crisis of Paulson’s Wall Street buddies losing their houses in the Hamptons. It’s sickening, and there ain’t no good medicine.
Facts
o Under Bush our borrowing has increased the national debt by a staggering $5Trillion, 83%, through the unsustainable combination of reduced taxes and increased spending
o These were Bush’s policies rubber stamped by a Republican controlled Congress
o Living on this credit card is a huge contributor to our economic mess
johnh,
Yes, lets talk about obama’s connections to Freddie Mac and Fannie Mae.
Here are the connections here:
Obama’s only tie to Freddie Mac and Fannie Mae was a Washington insider Jim Johnson who was chosen to help with Obama’s V.P. search AND THIS MAN RESIGNED FROM THE SEARCH TEAM. This incident is a bunch of nothings!
Raines was never an advisor to the Obama campaign, ITS AN OUTRIGHT LIE BY THE MCCAIN CAMP! You can go to, “FACT CHECK” and check this issue and concerns about McCain’s ad making these false allegations.
McCain’s ties are MUCH MORE NUMBEROUS AND SERIOUS.
http://news.muckety.com/2008/09/10/obama-and-mccain-both-have-ties-to-fannie-mae-and-freddie-mac/4941
NOW: MORE LIES AND FREDDIE MAC/FRANNIE MAE CONNECTIONS!
We learn yesterday as I posted above that McCain’s Campaign manager was receiving money that he should not have been receiving from Fannie Mae/Freddie Mac at the tune of 15K every single month up until the government took them over and they have been LYING the entire time and even painting false pictures of Obama’s relationships to these entities when all along they were the ones with the REAL connections!
This is just plain CHILDISH, HYPOCRISY and DISHONORABLE.
But, this has been the motto of Republicans behaving like juveniles and not adults and is the reason way we find ourselves in this disastrous mess.
Now look for more to come out on why McCain’s campaign manager’s Lobbying Firm that he owns was receiving this FREE MONEY while working as McCain’s Campaign Manager and doing no work for Fannie Mae/Freddie Mac!