Congress needs to take bailout back
Treasury Secretary Henry Paulson has switched the bailout plan from buying troubled mortgage securities to buying preferred shares in healthy banks. Commentator Robert Reich says it's time to stop the handout.
Robert Reich (Robert Reich)
More on The Economy, Wall Street, Commentary - Robert Reich, Politics, Robert Reich, Fed. Budget/Govt. Spending, America's Financial Crisis
TEXT OF COMMENTARY
Kai Ryssdal: With two months 'til the inauguration and Congress approaching the end of its lame duck session, it's entirely possible that we have seen the last of Henry Paulson defending himself in a congressional hearing. He spent most of yesterday doing just that over how he's chosen to spend about half of the $700 billion bailout package. Commentator Robert Reich wishes he'd spent it differently.
Robert Reich: Hank Paulson has just about burned through $300 billion, and it's not clear what the public has got out of it. Perhaps things would be worse without the bailout, but they're certainly no better. Wall Street banks have not significantly stepped up their loans to small businesses, college students, car buyers or distressed homeowners. Much of the auto industry is on the verge of bankruptcy. And the rate of foreclosures is rising.
What happened to all the money? About a third has gone into dividends the banks are paying their shareholders. Some of the rest into executive salaries and bonuses. Another portion toward acquisitions designed to raise share values. Another chunk for bailing out giant insurer AIG.
That's not what taxpayers bargained for. Paulson originally told Congress he'd use the money to buy mortgage-backed securities that were clogging the financial system. He'd create a market for them by holding a kind of reverse auction, buying them from the banks at the lowest prices they'd be willing to sell them for.
But Paulson has abandoned that strategy and is now just handing the money directly to the banks and AIG -- all of which are using the money for their own purposes. It's the worst type of trickle-down economics. Taxpayers are sending the money upward, and almost none of it is trickling back down.
The lame-duck Congress should amend the so-called Troubled Asset Relief Program to prohibit banks that are receiving the money from paying dividends, executive bonuses or deferred compensation, or doing acquisitions.
And Congress should save the rest of the $700 billion program for a new administration that will put it to better uses. For example, as FDIC Chair Sheila Bair has suggested, use the money to guarantee payment of mortgages whose terms are eased by lenders. Use it also to restructure automobile companies whose creditors, executives, shareholders and workers agree to put up money, as well. Use it to guarantee loans made to credit-worthy small businesses, college students, car buyers and others who at this moment cannot get credit -- and who therefore cannot keep this economy moving forward.
In other words, use it for a bottom-up bailout rather than trickle down.
Ryssdal: Robert Reich is a professor of public policy at the University of California, Berkeley. His most recent book is called, "Supercapitalism."
Comments
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11/22/2008
Americans are to naive and for generations have considered it uncool to learn math. Well, smart people like mr. Paulson ahd his cronnies at GoldmanSachs and other investment banks have learned to milk the americans pretty well, using math. They raped america when they sold the junk mortgages as 'securities', and now, with the help of their mole Mr. Paulson, are raping america a second time by stealing tax money. But then, naive americans, greedy but ignorant, deserve the fornication.
From Texas, TX, 11/20/2008
RR and congress should stop saying again "If I knew then what I know now.." stuff. You get what you pay for. Should have asked more questions and exhibited better judgement before giving the money out.
Why can not we get away from the notion that homeownership is a must for everybody. People who bought homes that they could not afford, should suffer for making bad judgement. One does not need to be a rocket scientist to understand a 'too good to be true deal' when supposed cunning people sold them the houses and mortgages. It just reinforces the comment 'a sucker is born every minute'. Why should I have to suffer for paying my mortgages in time and keeping my hopes and dreams within 'limits'during times of unrealistic 'exuberance'?
From Sacramento, CA, 11/20/2008
The first time I ever take issue with RR. Do not bail out the automakers! Let them take your advice of a few weeks ago of Chapter 11. Employment benefits were extended.
Let's foster competetion among all the automakers by giving all of them green subsidies to make fuel efficient cars.
They will hire back the workers again.
2nd issue! Sheila Bair's proposal rewards poor behavior. I don't like it when my nation makes me feel like a stupid idiot for buying a home I could afford.
From Grafenwoehr, Germany, SC, 11/20/2008
You know, I typically agree with Mr. Reich's views and this one is no different. I would even go further and say maybe we should stop giving money to banks all together and give money to small business, gas relief for truckers and trucking companies and farmers who grow food, not ethenol crop. The last bit should go to troubled mortgages. I'm not for paying peoples mortgage but, like the election choosing the best of two evils, I would rather pay a mortgage than greedy banks that got us in this from the start. $380 billion would have paid every mortgage and wiped the slate clean and that money we can be sure we'll get back; we have this organization called the IRS that makes sure citizens, probably not banks, pay there taxes. The same organization will make sure they pay there government bailout. The banks are a matter for another government organization two actually, the SEC and FBI i.e "Trust Busters". Then again I may know why Mr. Paulson, a democrat i'll add just to show greed is a bi-partisan issue, as head of Goldman Sachs's he bet against companies and company stocks; that means, to make a very long explaination short, they make money if companies and banks fail not succeed and, or those who thank he can not make money as Treasury head from Goldman Sach's, your right but, his wife or close buddies can for a nomial fee so when he finishes his term as Treasury head, he get's access to the accounts in his buddies name. And as for loaning money to potential college students, yes giving loans to students would help. Since we are in a credit, not a cash, crisis extending loans to college students is more a stable market, which gurantees more payback, at a longer rate but, payback none the less.
From Washington, DC, 11/19/2008
So Robert Reich, professor Reich, of U. Cal Berkeley, thinks one of the ways to solve the economic crisis is to guarantee loans to college students. Interesting.
From Richardson, TX, 11/19/2008
It looks like we are stuck with stupid til' the end - January 20th.
Now I remember why I was SO against this bailout, because it was going to be squandered on the good ole boy network.
From Kentfieldc, CA, 11/19/2008
I am entirely supportive of Robert Reich's view of Mr. Paulson and his totally failed policy of ignoring the failing mortgage populataion and saving instead investment bankers. If he did both, MAYBE OK, but banks alone... TREASON or worse. Has the late George W. Bush not seen the trees in the forest and only looking into his own retirement potential.
This current administration and congress has completely failed Americans and deserves a coal in the Christmas stockings... but that won't happen, will it?
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