I, for one, am glad that the $700 billion bailout is stalled for the moment, though not for the reasons over which the balkers are balking. Republicans can call the Treasury Department's bailout "socialism," but if so, it's a very peculiar kind of socialism: socialism for the rich, not for the masses.
Barack Obama is fundamentally right when he describes the madness in the financial markets as trickle-down economics leading to pain trickling back up to Wall Street. (In so many words, anyway.) The bailout, though, doesn't repudiate the trickle-down nonsense, it embraces it.
How many times have we been told in the last week to think less selfishly about the move, about how we all will benefit from it? We heard it again today, from Bank of America Chairman and CEO Kenneth Lewis, through the auspices of the Wall Street Journal. "This is not about how to bail out Wall Street. This is about saving the U.S. financial system for the benefit of American businesses, consumers and the economy at large," he writes. Otherwise, we can expect "less credit to buy homes, cars or other large-ticket items, followed by further declines in home prices, reduced production of goods, shrinking economic activity and rising unemployment." Yada, yada, yada. (Lewis also assures us that self-interest is not what motivated him to speak out. "This bill may help a number of our competitors much more than it will help us," he says. Sure, it may.)
The whole thing stinks, and Lewis and Paulson know it, and so does everyone. The architects of our bogus mortgage finance market get to keep the billions they've made* -- I'm talking about the people who run the companies and the clever shareholders who sold when the stock was high, not the companies themselves. (I'm one of those not-very-clever shareholders of Washington Mutual.) They are further assured of making more money, and not just in the abstract sense of getting to live to trade another day. As National Public Radio reported earlier, the very same companies that packaged this fraud will almost certainly hire on to help sort out the government's newly acquired, massive pile of paper. (Morgan Stanley and the investment adviser BlackRock have already participated in the Fannie Mae and Bear Stearns interventions. As Steve Bartlett, president of the Financial Services Roundtable, an industry trade group, explains, "What you don't want to do is to set up a government agency to try and do it, because by the time they learn how to do it, the world would've gone way past it." Of course, it was precisely that sort of expertise that got us here in the first place.) And of course, as with so much of trickle down economics, there's hardly any assurance that once we effect this transfer of wealth to the already wealthy, it will actually trickle down to stabilize credit markets. (In fact, many economists believe otherwise.) Nor does it do anything directly to keep people in their homes.
The Democrats have tried to include measures that would help on that front, but these are nothing more than rearranging the Titanic's deck chairs. (Really -- when was the last time that tired metaphor ever sounded so apt?) If Obama were as courageous as he likes to pretend, he would offer a true trickle-up solution. Instead of supporting the note-holders directly, why not support them indirectly by shoring up the borrowers? Keep them in their mortgages, and keep them in their houses, and the portfolios held by foundering banks and hedge funds will stabilize, and those institutions will no longer need the cash infusion. I'm the first to admit that such a scheme is unwieldy, as the government deals with millions of borrowers. But that's precisely what would happen with the current bailout proposal, Bartlett and former Resolution Trust Corporation chairman Bill Seidman told NPR, as the government conducts loan workouts on a massive scale. This plan has the virtue of being fair -- or, at least, fairer. It will do much more to stabilize home values and neighborhoods across the country.
One way or another, someone is going to be rewarded for foolish decisions. Don't we think Wall Street's sharks have been rewarded enough?
*Treasury Secretary Henry Paulson's take as CEO of Goldman Sachs? $111 million between 2003 and 2006.