FinalCall.com News Editorial

(FinalCall.com) – America loves to tell the story of the self-made man, that rugged individualist who uses skill, courage and grit to make it. It is the story of those who take risks, work hard and reap the benefit of their labor. It is the story of those who tell government to get out of the way, let the market and good ole American ingenuity rule the day.

It is also a myth.


All of the bravado of the self-made man and steely-eyed, squared jawed capitalism went out the window when the president and the secretary of the Treasury started talking about using $1 trillion in taxpayer money to bail out financial institutions on Wall Street drowning in a sea of bad debt.

According to some, it was also a crass exercise in making sure that the good old boys don’t suffer too much and that supporters of the Bush administration enjoy a softer landing.

“Not since the Bush Administration’s lies about Iraq’s ‘weapons of mass destruction’ have the American people been so despicably misled,” wrote Richard W. Behan, an avowed Bush administration critic in a piece published on Commondreams.org. “The Bush Administration’s proposal to buy, with taxpayers’ money, $700 billion of toxic liabilities from the corporate financial titans of Wall Street is a fraud. It is by no means necessary, as Treasury Secretary Henry Paulson claims in the agency’s Fact Sheet, ‘… to promote market stability, and help protect American families and the U.S. economy.’

“It is necessary only to assure the financial survival of Wall Street banks and brokerages, the Administration’s most loyal supporters and its greatest political contributors–and in large measure the cause of the financial meltdown the country is facing. These financial corporations lobbied ferociously to be free of government regulation. Had they not succeeded, they could not have done what they did next. They created and leveraged trillions of dollars of complex ‘derivatives’–mortgage-backed securities, collateralized debt obligations, and credit default swaps–all riding on an unprecedented real estate bubble stimulated by their frenzy of creative finance. When the bubble burst, as bubbles do, many of these financial titans faced bankruptcy, their obligations far exceeding their assets.

“The $700 billion of taxpayers’ money, in the plan suggested by Treasury Secretary Henry Paulson, will buy enough of the toxic obligations to allow the companies to avoid bankruptcy. Not coincidentally a major beneficiary of the scheme will be the investment bank Goldman, Sachs. Mr. Paulson resigned as CEO of Goldman, Sachs to become Treasury Secretary in 2006, having amassed a personal net worth of $700 million during his 32-year tenure at the bank. (On average, $21.9 million per year.),” he noted.

Writer Behan argues that instead of rescuing investment bankers who started the financial firestorm, the $700 billion should be made available to possibly thousands of banks and thrifts that weren’t involved in the real estate/predatory loan shell game. These financial institutions could help make credit flow and help revive the economy, said Mr. Behan.

“The welfare of the Wall Street financiers should not be the focus of public policy, and this clever attempt by the Bush Administration is a perversion of decent governance. We should not be stampeded into the greatest corporate theft of public assets, arguably, in the nation’s history,” he added.

While the well-heeled and the well-connected can count on a bailout courtesy of the American people, those footing the bill are feeling more pressed financially. As experts have said when home values are down, unemployment up, the stock market lurching like a roller coaster; consumers have little reason for optimism. And it is consumer spending, usually connected with some optimism, which drives the American economy. If people are feeling afraid, losing their homes, scared of losing jobs, the little money they have stays in their pockets.

There has been little talk of easing the financial burden suffered by ordinary people. If billions can be made available to suck up the bad debt that millionaire bankers profitted from, can a way be found to keep people in their homes? When people lose their homes, their lives and neighborhoods are disrupted. Gas prices have gone through the roof. Food prices are close behind. Some say consumers are paying as much as one-third more for gas and food budgets alone. If the taxpayers are going to have to pay for the mess, shouldn’t taxpayers get some relief or some benefit for the burden that they and their children will carry as the bailout and its companion rescue of other Wall St. firms are added to the national debt?

At Final Call presstime, the president and Congress were playing let’s make a deal. President Bush was calling for quick passage of the proposed package and some Democrats were rumbling about making sure that the package works and maybe trying to shoe horn in something for taxpayers.

Both political parties have their share of the blame for allowing the crisis to hit in the first place: The Republicans love deregulation and getting away from government oversight. The Democrats had been timid and tepid when it comes to challenging GOP policies and stung by their own version of “Republican lite” with pro-war, pro-death penalty, welfare reform philosophies of the New Democrats. Afraid of being labeled tax and spend liberals, the Democrats have often seemed unsure of what to do except dump the issues of the Black, the Brown, the Yellow, the Red and the poor at first chance.

It was fine to be for welfare reform when the scapegoats were poor mothers, who could be slandered as “welfare queens,” and the chorus of individual responsibility could be sung to the heights. Where is the demand for an end to welfare and indignant insistence on accountability now that the corporations are lined up for a billion-dollar public handout?

Related link:

Are U.S. Treasuries Headed For Junk Bond Status? (FCN, 02-04-2008)