I have to depart today from my usual practice of focusing on Maryland politics and issues to comment on the financial debacle unfolding in Washington and New York. Once again the taxpayers and citizens are being taken for a ride by the Paulson, Bernanke, Bush and the other clowns who pretend to manage the economy.
Let's take a look at the background first. With the deregulation of the banking system in 1999 let by Senator Phil Gramm - now John McCain's chief economic advisor and with full and vocal support by Senator McCain himself (who, until last week was an ardent foe of any kind of regulation) - large commercial banks moved full speed into the brokerage and insurance business while every other financial institution spread into mortgage banking and investment banking.
When things started to go sour due primarily to the banks investing in securities they didn't understand, the mightly capitalists on Wall Street turned, of course, to Washington for help. Bernanke and the Federal Reserve obligingly started lowering interest rates and, several times pumped billions of dollars into the financial system through the Federal Reserve. When that wasn't enough, Bernanke and Paulson jumped in with more taxpayer money to rescue the unregulated investment bank Bear, Stearns. After this rescue Paulson announced that the problem was contained.
A few weeks ago another $35 billion of taxpayer money was commited to bail out Fannie Mae and Freddie Mac whose managers had unwisely decided to forget what they were created for and decided to fund mortgages and mortgage-related debt for people who couldn't afford them. At that point, Mr. Paulson again expressed confidence that the crisis was being managed.
Last week another investment banking firm collapsed and Mr. Paulson, in his wisdom decided that we, the taxpayers, needed to spend $75 billion of our money to support the unregulated and private insurance firm AIG, which was so badly managed that it had lost 95% of its market value. Of course, those same managers are still in place being richly rewarded by you and me.
Now Mr. Paulson, echoed by Mr. Bernanke and Mr. G.W. Bush comes to us saying that we need to let them spend $700 billion of our money to rescue the firms on Wall Street from their own stupid mistakes.
Let's take a look at what they're proposing:
First of all they are asking for carte blanche for Mr. Paulson to acquire on our behalf any asset (not just the mortgage-related securities which he says are the problem) of any kind at any price he wishes to pay. Further he is asking that his decision not be subject to review by anyone else - congress, the courts - anyone.
Mr. Paulson also says that his purchases will not be limited to assets of U.S. corporations or banks, but that he should be able to acquire assets from foreign banks and companies even though no foreign government is participating.
Of course, you know he's going to pay more than the going price for these assets because otherwise there would be no reason for anyone to sell them. He wants to use our money to protect the banks from having to write down their assets.
And who's going to manage all these 'assets' when he's purchased them with our money? The same people who screwed things up in the first place - the Wall Street money managers. They're already maneuvering for a piece of the pie which will be worth billions of our money each year.
Let's be real clear. If we're going to purchase the toxic assets of these banks, then we should get a big share of the banks stock, too. This has worked in other countries, notably Sweden, and it will work here. And the people who have run these banks - and our economy - into the ground need to be fired, with no 'golden parachute of millions of dollars and no consulting fees.
And let's remember that Mr. Paulson, before Bush appointed him Secretary of the Treasury, was an investment banker on Wall Street! No wonder he's so anxious to bail out his buddies. I'm sure he has his eye on a good job up there when his stint as Treasury Secretary is over. Let's hope that is sooner rather than later. If we're going to have to pay for this, we need someone other than clowns running the show.