Progressives Starting To Demand An Alternative To Paulson's Boneheaded Proposal & Corporate Giveaways

Although he has a somewhat different approach than the good folks at BuyMyShitPile.com, Paul Krugman has an eye-opening column in today's NY Times called Cash For Trash. He gives voice to the uncomfortable notion floating around the zeitgeist that calls "the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force, the infamous bill that gave the Bush administration the green light to invade Iraq."

Paulson is demanding extraordinary power for himself-- and for his successor-- to deploy taxpayers’ money on behalf of a plan that, as far as I can see, doesn’t make sense.

Some are saying that we should simply trust Mr. Paulson, because he’s a smart guy who knows what he’s doing. But that’s only half true: he is a smart guy, but what, exactly, in the experience of the past year and a half-- a period during which Mr. Paulson repeatedly declared the financial crisis “contained,” and then offered a series of unsuccessful fixes-- justifies the belief that he knows what he’s doing? He’s making it up as he goes along, just like the rest of us.

So let’s try to think this through for ourselves. I have a four-step view of the financial crisis:

1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities-- assets whose value ultimately comes from mortgage payments.

2. These financial losses have left many financial institutions with too little capital-- too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.

3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.

4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”

...Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached-- no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review “by any court of law or any administrative agency,” and this adds up to an unacceptable proposal.

I’m aware that Congress is under enormous pressure to agree to the Paulson plan in the next few days, with at most a few modifications that make it slightly less bad. Basically, after having spent a year and a half telling everyone that things were under control, the Bush administration says that the sky is falling, and that to save the world we have to do exactly what it says now now now.

But I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded-- if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.

This weekend Democrats Blue America backs strongly, Congresswoman Hilda Solis (D-CA) and candidate Annette Taddeo (D-FL), both big supporters of small businesses and working families, have been campaigning together in Miami-Dade and talking with voters about the bailout. Hilda is a member of the Energy and Commerce Committee and she has been instrumental in making sure Annette understands exactly where the congressional debate has been going and why a progressive alternative to Paulson's proposals is needed. Annette:

“We are in a state of crisis. Taxpayers will have to spend $700 billion or more to pay for the refusal of President Bush and rubberstamps like Ileana Ros-Lehtinen to conduct oversight or accountability. We need to protect American families and small businesses. For too long, George Bush and Ros-Lehtinen have sided with the special interests, and the American people are left paying the bill.”

She is an advocate of cutting taxes for small businesses and the middle class and bringing the power balance between corporate America and the rest of us back into pre-Bush Regime equilibrium. “We must cut taxes for the middle class so that they have real relief. We must expand health care for children, so that parents who are increasingly being squeezed don’t have to choose between paying the rent and buying medicines. We must end the war in, Iraq where we are spending over $400 million a day. We must have real oversight over Wall Street so that this does not happen again. And since this crisis began with too many unsustainable mortgages, any resolution must include a plan to ease pressure on homeowners.”

Hilda is one of the good guys in Congress who we will be counting on to stand up against the corporate shills like Steny Hoyer, Rahm Emanuel and Melissa Bean who are pressuring Democrats to sign on to the Bush Regime proposals, like they did when he wanted to invade Iraq and just like they did when he decided to shred the Constitution with his FISA bill. In her joint statement with Annette, Hilda reminded Floridians that "Three years ago, President Bush and rubberstamps in Congress like Ileana Ros-Lehtinen fought hard to privatize Social Security. From the floor of Congress, Ros-Lehtinen said that she “applauded the President for his strong leadership and vision” and that she wanted to “reform Social Security to include private accounts. Had George W. Bush and rubberstamps in Congress had their way, today’s financial crisis would be a full-blown emergency. Tens of millions of seniors around the country, including hundreds of thousands here in South Florida, would have lost their pensions overnight.”

Annette followed up with a statement going right to the heart of the Bush Regime's flawed approach.

We will not be forced into acting on a $700 billion bill without even examining what the bill does. The American people need protection so that this emergency does not turn into a boondogive-away to corporate insiders. Congress should send President Bush a bill that includes transaction standards, independent oversight, protections for homeowners, and constraints on excessive executive compensation.

The bill is inadequate because while doing nothing for homeowners, it gives the Treasury Department a blank check for Wall Street-– it authorizes purchases “on such terms and conditions as determined by the [Administration].” There would be no guidelines, no standards, no conditions. The Treasury would be permitted to purchase assets at any price it wanted, even if it provided a huge profit to the same corporate entities that got us into this mess in the first place, entities like commercial banks, investment banking firms-– even hedge funds-- that have acted recklessly or worse.

I oppose, and call on Ileana Ros-Lehtinen to oppose-- the Bush Administration’s proposed legislation giving the Treasury the power to spend up to $700 billion to buy “mortgage-related assets” from U.S.-based financial institutions, until the proposed bill is strengthened to protect homeowners, and to protect the American taxpayer from sweetheart deals, cronyism and outright waste.

Finally, if the bailout is to be expanded to cover foreign-headquartered companies, then our allies must share the burden. Unfortunately, after seven and a half years of Cowboy diplomacy and a war in Iraq based on lies, we have little if any leverage left with our allies. They have no desire and little incentive to help us in our moment of need. It is time for a new beginning.

Debbie Cook is another Blue America-endorsed candidate who Hilda has been helping-- this time to beat Bush rubber stamp and lunatic fringe extremist Dana Rohrabacher here in southern California. Debbie, who is the mayor of Huntington Beach and very much in touch with the mundane problems the Bush Economic Miracle have brought into the lives of real people, was the very first Democratic candidate to e-mail us on Friday night when Paulson's proposal started leaking out:

"We must take action to keep our whole economy from collapsing. But if the plan by the Treasury which has leaked out today is genuine, then it's unclear if the plan will work at all.

"Add in a massive transfer of authority to the executive branch, with no congressional oversight or judicial review, and this plan should be dead on arrival. 

"Handing over taxpayer money to the government with no oversight is always a bad idea and it's especially rotten given the current administration's track record."

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Meanwhile, up in Oregon, Speaker of the House and Democratic Senate candidate Jeff Merkley is demanding that Gordon Smith represent Oregon citizens for a change-- and not his corporate backers who have financed his political career in return for his constant help with their special interests. He is insisting that Smith reject Paulson's proposal. This morning he demanded that Smith reject the blank check proposal that needs to be fixed so it includes "protections for homeowners, limits on executive compensation and market reforms to prevent a future crisis. " As Jeff points out, Smith's lockstep support for deregulation-- the 1999 Phil Gramm legislation that removed restrictions on the activities of banks, investment firms and insurance companies and allowed the proliferation of new and unregulated banking practices was instrumental in causing this crisis.

"Republicans in Washington are demanding a blank check to fix the mess they created and that is completely unacceptable. Real families are hurting in this economy and George Bush is only concerned about CEOs on Wall Street. Gordon Smith rubber-stamped the Bush policies that led to this mess, and I urge him to reject any blank check that puts special interests on Wall Street ahead of families on Main Street.... Gordon Smith says, 'don't play the blame game'-- what he really means is 'don't hold me accountable'.  Oregonians need new leadership in Washington and that starts with rejecting the failed policies and philosophies of Gordon Smith and the Republican party in November. In the meantime, Smith must stop giving blank checks to the Bush Administration-- he did it with the Iraq war, and he shouldn't do it now."