Tuesday, September 23, 2008

Brother, Can You Spare $700 Billion?

The U.S. Treasury Secretary, Henry Paulson, is advocating speedy passage of his proposal to bail out the country’s financial markets with what is essentially a blank check in the hands of the U.S. Treasury. Both major presidential candidates support the basic idea of the plan, though are calling for more regulations and a more detailed structure of the plan.

I can certainly find better ways to spend $700 billion (28 billion White Castle Crave Cases, for example). Considering we have veterans in need of health care, active duty military personnel in need of supplies and better pay, open borders that need protecting, roads and bridges that need repair, schools that are falling apart and subways that can’t run on time, bailing out careless investment bankers does not sound like it should be a top priority. Sadly, it’s a stop-gap measure meant to reassure the world’s financial markets and avoid a greater economic catastrophe

While the goal is to avoid a larger financial meltdown, the plan is essentially wrong. Our tax dollars are going to be used to bail out large banks and other investors who made bad investments. The plan will have the government buy these assets and then hire some of these same investors to help them sell it to some of these same investors, who will have the opportunity to salvage profit from their own bad investments, with our tax dollars.

The entire text of the proposal is fewer than 900 words (849 by my computer’s count). The document looks the product of a high school or college student who wakes up with a hangover and realizes they have a term paper due in 45 minutes. It has a two year time frame and the promise that the Treasury Secretary will report to Congress occasionally, but lacks any of the regulatory detail that the circumstances require. Members of Congress are going to have to be able to look their increasingly broke constituents in the face and tell them why he or she voted to bail out Wall Street millionaires while the homes of middle and working class voters are being foreclosed on.

To a certain extent, I can understand the lack of detail, since the object is to get the thing passed as quickly as possible before the financial markets get any worse and then let Congress haggle over the specifics. The roller coaster ride the markets have taken—shooting up when the proposal was made but then dropping as opposition formed and quick passage was not assured—lend credence to the government’s fears that failure to pass the measure would lead to more catastrophic bank failures and maybe worse.

However, passing a $700 billion spending package with a document that wouldn’t have passed muster in freshman economics class is not the way to go.

Then there’s this gem:

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

So Secretary Paulson, who is the former CEO of Goldman Sachs, and his successor, will have two years to go on a buying and selling frenzy and not have to answer to any court of law regardless of what he does? That’s a blank check with carte blanche, and that’s absurd.

1 comment:

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