Call it extortion. Every American is now being told to ante up $2000 - an estimated $700 billion in all - to bail out the banks from their bad bets, or they'll bring down the entire economy.
In the speculative frenzy that allowed the Masters of the Universe to pocket millions personally, the banks filled their coffers with toxic paper that no one wants to buy. Now they sensibly don't want to lend money to each other, since no one knows if the other is solvent. So they go on strike, and threaten to trigger a global depression, if they don't get rescued. (for more details go here.)
The bail out will take place simply to avoid that depression. But depressions have some salutary effects - the scoundrels go belly up, the weakest get purged. And, in the wake of the disaster, people demand strict regulation of the money lenders to keep their greed in check, and government spends money on the real economy to put people back to work.
So if we're going to ask Americans to pay to avoid the depression, we better demand the accounting that wouldn't otherwise take place.
We need a citizens' plan on the crisis. Here's a first draft, derived from discussions with a range of independent experts.
No bail out should go forward without the following minimal conditions:
1. Taxpayer money; taxpayer accountability. The Treasury wants unlimited authority to spend $700 billion in a revolving fund with no rules beyond its own discretion. We can't trust the most spectacularly corrupt administration in memory to decide how they'll cut the deals with the banks. We'd get fleeced. Instead, the law must require an independent entity, with consumers and workers having a majority of the seats on a board with authority to create rules that will prohibit gaming of the bailout. And the Congress - itself sadly compromised by Wall Street money - should be empowered to name independent monitors and to approve all board members.
2.Taxpayers share in the upside. The Treasury bill would buy the bad paper of firms without taking any equity in the firm. That's an invitation to larceny. If a firm decides to auction off its toxic paper to the US agency, taxpayers should get equity in that firm, in proportion to the assets we buy. That will deter profitable firms from using the agency as a dump for their toxic paper. And it will insure that if the bailout works and the firms become profitable, taxpayers, not simply bankers, benefit from the upside.
3.Shut down the casino. No bailout of the predators can go forward without new regulation for the financial system - capital requirements, leverage limits, bans on exotic instruments, transparency, limits on compensation schemes. The shadow banking system - hedge funds, private equity firms - must be brought under the glare of regulators. The Federal Reserve should be directed to police asset bubbles. Over the counter trades - like the credit default swaps - should be brought into public exchanges. Some details should be written into the law; Treasury can be mandated to issue more comprehensive regulations by a date certain, with fast track rules for consideration by the Congress. One thing is clear: any promise to do the bail out now and the regulation later is simply a lie.
4.Curb excessive CEO pay. Wall Street fatcats shouldn't be pocketing millions taxpayers are forced to bail them out. Any firm that applies for relief must agree to limit the compensation of any executive - pay, bonuses and perks - to no more than the highest pay offered a senior federal official. Future compensation should be linked to profitability.
5.Invest in the real economy. Ending the bankers strike is not sufficient to avoid a serious recession, as consumers tighten their belts. A major public investment agenda - $200 billion or more - for developing new energy and conservation, rebuilding schools and infrastructure, extending unemployment and food stamps, helping states avoid crippling cuts in police and health services - is vital to get the real economy moving and put people back to work. If we don't do this, the coming recession will raise the cost of the Wall Street bailout dramatically, as credit card, auto and home loan defaults rise.
6.Aid the victims, not just the predators. No bail out of the banks can take place without a freeze on foreclosures and renegotiation of bad mortgages so people can stay in their homes. Bankers and home owners both made a foolish bet that home prices would keep rising. Many homeowners were misled by predatory lenders to taking mortgages that they didn't understand and couldn't afford. It would be simply obscene to help the predators and not those that they preyed on.
7.Curb the political corruption. No contributions from Wall Street PACs or executives should accepted by any legislator or candidate for national office. Paid lobbyists of Wall Street firms should be banned from any legislative contacts. Any meeting with representatives of Wall Street - and many will be needed to understand what is happening - should be posted immediately by legislators in a central place on the web. All those employed over the past five years by troubled firms seeking relief should be prohibited from profiting from the bailout. Without this ban, legions of executives from Bear Sterns or Lehman Brothers will create consulting firms to profit from cleaning up the mess that they made.
These demands will be met with howls of outrage, a renting of pinstripes. It will require a Congress, lathered with Wall Street contributions, to demand a deal that makes sense. This won't be easy, particularly with Republicans apparently lining up en mass to rubber stamp the Bush administration proposals. But trusting this administration to decide without conditions on how to bailout the banks with $700 billion in taxpayers money is simple lunacy.
These banksters have brought the global economy to the brink of the abyss. They want to use that crisis to give the Treasury a virtual blank check to bail them out. Counting the money already spent, more than a trillion dollars will be spent rescuing them from the mess that they have made. Before agreeing to that, Congress has to demand common sense conditions that insure the taxpayers won't get fleeced, and this won't be done to us again.
Make your voice heard. Add your comments below. Write Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and demand that they stand up. Write Senate Republican Leader Mike McConnell and House Minority Leader John Boehner and tell them that saluting the Bush administration is not sufficient. Tell the Committee Chairs Senator Chris Dodd and Rep. Barney Frank that the Treasury proposal is unacceptable. Finance is too important to be left to the bankers. And the bailout is too costly to be left to the Bush administration.
It's time for citizens to demand common sense.