DO NOT REWARD THE PIRATES: The Financial Crisis of September 2008

By Citizen Paul
09/30/08

Our current financial-industry crisis started brewing years ago because of political and ideological extremism. The antiregulation zealots have systematically eroded and eliminated the essential safeguards that have kept the industry honest and accountable, and these actions, over time, allowed and encouraged unbridled greed to run amuck on Wall Street and throughout the banking industry. We are now facing an enormous urgent uphill struggle to contain the damage these years of neglect have brought about.

The problem is both incredibly complex and frighteningly simple. The bottom line is this: The credit system, the life blood that fuels the everyday life cycle of our economic wellbeing, is in serious danger of failing — of seizing up. Fear is a primary motivator at this point, with lending institutions terrified to loan money they’re not sure will ever be paid back. Apparently we came close to just such a seizure of the system on September 17th, and that’s when the three main players in the subsequent negotiations began a frantic campaign to alert the country — and Congress — to the impending nightmare.

For months, Henry Paulson, Secretary of the Treasury, Ben Bernanke, Chairman of the Federal Reserve, and Timothy Geithner, President of the Federal Reserve Bank of New York, have been fighting a furious but quiet rear-guard action as these mountains of mortgage-related debt piled up on the teetering balance sheets of most major Wall Street firms. When the dominos started to fall, one by one, over the course of the summer — Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch, AIG — the magnitude of the crisis became more and more clear.

Their solution — the White House solution — amounted to nothing less than the greatest governmental intrusion into the private-business sector since the New Deal. And by its very title, “Bailout,” it took on the aura of being a sellout of American taxpayers. Paulson asked Congress for 700 billion dollars to buy the mortgage-related securities — the debt — of most of the struggling companies, to provide them with a massive infusion of capital to stay afloat and to calm the markets.

Republicans and Democrats alike hated the idea, and saw it as a massively expensive reward system for the financial-industry insiders who had created the mess to begin with — a bailout for incompetents, swindlers and crooks! And the American public rose up in anger as well.

With just weeks to go before the national elections, everyone in Congress is terrified to go on record as having voted for a bailout for Wall Street Pirates. On Monday, September 29th, the House of Representatives, led by Republicans, voted down a compromise bailout plan that was a much-revised version of Paulson’s original plan — a stinging defeat for the House majority and minority leaders and especially for President Bush.

As a result, the stock market plunged almost 800 points by the closing bell, the largest single-day fall in history.

What needs to be done now?

Representatives from the Congressional leadership, working with Federal Reserve officials and the White House, need to keep working on this plan until they get it right.

But buying the debt from these irresponsible institutions is not the solution!

The Federal Reserve should convene an emergency meeting and approve a major interest-rate cut. This would not only make borrowing easier in the struggling credit market but would also have a powerful psychological effect on the world markets.

A loan program should replace the buyout program — a program that should be contingent upon the firing of the executives — the pirates — of these same Wall Street firms that are now lining up for bailout money. The Fed just recently saved A.I.G. from collapse with an 11 percent loan, not a buyout.

Why don’t the White House and Paulson think this sensible solution that will actually earn serious money for the government, would also make sense for the current situation?

This crisis is real and immediate, but another round of fearmongering by the White House is not the solution! The public has had enough of President Bush telling us that it’s his way or the highway. His credibility is long gone! And Congress is siding with the public.

The next president and the 2009 Congress will have a serious regulatory overhaul to deal with and plenty of time to assess blame and prosecute lawbreakers.

The job now is to get the credit market functioning again on a daily basis plus convince the international markets that we are serious about cleaning our own house.

JUST SAY NO TO THE WALL STREET BAILOUT!

By Citizen Paul

At GOALS FOR AMERICANS we believe it’s time for Congress to resist the latest example of fearmongering coming out of the White House — this time concerning the credit market crisis!

We agree with the considerable number of experts who think the proposed 700-billion-dollar bailout of the financial-services industry mortgage debt is an absurd overreaching to the crisis –- a so-called solution that neither addresses the underlying problems nor forces the guilty parties to accept responsibility for their immoral actions.

Secretary Paulson’s and President Bush’s plan, if rushed through, would result in the American taxpayers being forced to take on the worthless debt created by a handful of criminal corporate leaders who themselves have already pocketed millions in bloated salaries, bonuses, perks, and obscene retirement packages.

The crisis is real, but this BAILOUT is the wrong solution.

Instead of buying their debt, we support plans that involve FEDERAL LOAN GUARANTEES to these struggling Wall Street firms, which they would be required to pay back with interest, so their debt stays with them, and doesn’t end up on the backs of taxpayers.

We support a vigorous oversight apparatus to insure the transparency of these loans. And we would demand that none of the money go to compensating any of the remaining corporate officers still at their jobs, who helped engineer this disaster with their fiscal irresponsibility and personal greed!

We would support allowing many of the smaller banks to fail, which would be in keeping with the essential philosophy of a free-market system –- ours! –- in which you accept the consequences and the responsibility for your corporate failings and abuses, come what may.

September 30, 2008 | Filed Under GFA