Stirling Newberry is back at dkos with his first post in almost two years, with his usual dazzling array of information and commentary (though he has been contributing to The Agonist). He pulls us back and out to the extremely macroeconomic in order to make the point that the Bush-Paulson bailout is a complete confirmation of the status quo (despite looking like a backtracking from “free markets”) and that other, opposite measures would actually not only help us contain the damage in the shorter term, but also fix the structural stupidities that drove us here in the first place.
He also argues that giving Paulson this unprecedented dictatorial power over money and finance is a constitutional crisis in and of itself.
It is a long post, but well worth the total read. You will feel like you have a bigger grasp of what is at stake here. An excerpt:
As Paulson’s little demand for dictatorial powers makes clear, this is not really a financial crisis. Instead, it is a political and constitutional crisis. Paulson told Barney Frank that putting in an amendment to cap executive pay would be a “poison pill.” If this were really a catastrophe in the making, one where the American public’s money was needed right now, or else, then Paulson would have accepted almost any conditions, even if he intended to renege on them in practice. After all, with 700 billion to spend, it would have been trivial to make sure that a few billion sloshed to the people whose golden parachutes he took away.
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The key to the constitutionality of this is that in order to pay back the massive sums of debt taken on by the failed Bush executive, which will probably amount to some 8 trillion dollars when all of the dust is finally cleared out of the air and everything is accounted for - some new source of value must be created. There is no way, with current rates of oil production, the global expansion of the middle class, and current rates of oil consumption, for the US to ever produce enough houses, at high enough prices, to print enough money to grow our way out of this debt. It is physically impossible, just as there ever being enough physical gold to pay off the debts of the First World War and its aftermath, because interest multiplies like rabbits, and gold does not.
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This means that while HOLC/RTC proposals are useful the most important step right now is to meet the demands of the Treasury Secretary for arbitrary powers head on, and select a different entity to manage any bail out, and to forbid bailing out of specific securities, but only of whole entities. In short, before the public will by any more toxic assets, the public will have the authority to remove the people who bought, created, and sold those assets.
There is already an entity whose purpose it is to evaluate failed institutions, collect insurance, and merge institutions into healthy ones. That entity as Robert Reich correctly observed in a recent radio interview, is the Federal Deposit Insurance Corporation. Since we have, effectively, taken responsibility for the global financial system, it is time to accept that the principle of insurance, direction, and regulation is required.
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Thus the centerpieces of a counter congressional bill are:
1. Expansion of the FDIC to include money market funds, brokerages, and other financial funds. Institutions which are out of this expansion, if any, will be allowed to fail as a class. Assign the CBO as the Congressional means of oversight and give the CBO authorization to extend credit to the FDIC, which can be waived if, after Congressional review, the money is justified. Basically, anything that Bush does on the way out the door must be subject to review by the incoming Congress and Administration.
2. Authorization of an HOLC type cram down of mortgages with government liens, the profits of which are split between home owners and the mortgage system, now in taxpayer hands anyway. Place this process in the hands of the FHA, and have the CBO assigned to continuous oversight. Authorize some 20 billion dollars in stock to be purchased by the government.
3. Declaration of a national emergency, without expansion of the debt ceiling, and also with explicit judicial review. In the national emergency specific authorization can be given to review any transfer of effective control of banks or other financial entites. In this declaration can be rationing of gasoline, imposition of conservation and other austerity measures.
4. Dramatically expand safety net programs for the inevitable economic shock: food stamps, unemployment insurance, suspension of interest on student loans, loans to the government by members of the National Guard, active Military, or Reserve and so on.
This excerpt, however, is just a taste. I really recommend you take the time to read the whole thing.
Also, we need to call our US Reps and Senators and tell them to fight against the Bush-Paulson bailout. You can reach Rep. Niki Tsongas’ DC office at (202) 225-3411. Senator Edward Kennedy: (202) 224-4543. Senator John Kerry:
(202) 224-2742.
