David Sirota: Fiscally Insane Bailout Bill Might Not Pass - Here's 5 Reasons It Shouldn't

[Hissyspit]

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The Fiscally Insane Bailout Bill Might Not Pass -- Here's 5 Reasons It Shouldn't

By David Sirota, Blog for Our Future. Posted September 29, 2008.

The scheme would force taxpayers to absorb the pain, while Wall Street execs reap the gain.

There was news Sunday afternoon of a congressional deal to bailout Wall Street fat cats with $700 billion of taxpayer cash (you can read the draft legislation here). Though the deal negotiated between congressional leaders and the White House is better than what Treasury Secretary Henry Paulson originally proposed early last week, it remains an insulting atrocity, having omitted even basic aid to homeowners, bankruptcy reforms and any modicum of future financial industry regulation. Now, the New York Times reports that the Democratic leadership may not have the votes to pass this bailout. So without further ado, here are the top 5 reasons (in no order) why every single member of Congress -- Democrat and Republican -- should vote this sucker down. Please feel free to copy and paste this post into an email to your congressperson. They are deciding right now -- let them hear your voice.

1. This Bailout's Inherent Fiscal Insanity Could Make Problem Worse

When an individual consumer uses a new credit card to pay off astounding debt from an old credit card, it's akin to check kiting, which is is illegal. Apparently, though, when the government does it, it's billed as Serious Public Policy. Because that's what this supposedly prudent bailout bill would do: Force taxpayers to borrow $700 billion from foreign banks to pay off the bad debt of Wall Street banks. During a crisis that is aimed at preventing interest rates from skyrocketing, nobody has been able to explain how adding almost a trillion dollars to the interest rate-exacerbating national debt would do anything other than undermine the plan's underlying objective. Worse, the U.S. Treasury Department itself admits that the $700 billion number is "not based on any particular data point" -- that is, they created it out of thin air because "We just wanted to choose a really large number." Slapping that amount of money onto the national credit card when our government can't even justify the amount is beyond absurd -- it is insane.

It didn't have to be this way, of course. As I noted in my newspaper column this week, Senator Bernie Sanders proposed a temporary tax on millionaires to finance part of this bailout. Similarly, Blue Dog Democrats proposed a future tax on financial firms if and when taxpayers lose cash on the deal. These proposals were discarded in favor of language asking the government to "submit a plan to Congress on how to recoup any losses," according to the Associated Press. Not only is that language toothless, but it opens up the possibility of a plan being submitted that says we should raise middle-class taxes or slash middle-class social programs to pay for Wall Street's misbehavior.

2. Experts on both the left and right say this bailout could make things worse

Primum non nocere is the latin phrase for "first do no harm" -- the priority principle for any EMT working on a sick patient. It should be the same priority for Congress at this moment -- and a growing group of esteemed experts on both the Right and Left are insisting that this bailout bill could make things worse. Here's a review:

The Washington Post reported on Friday, almost 200 academic economists "have signed a petition organized by a University of Chicago professor objecting to the plan on the grounds that it could create perverse incentives, that it is too vague and that its long-run effects are unclear."

REST AT LINK

[rontun]

1. Help send a message to my congressional delegation!

I've posted two polls on my local Democratic Party website. The first (which can be found at the bottom of this linked page) asks "Do You Support The Proposed $700 Billion Bailout Of Wall Street?" Three answer options are provided - yes, no, undecided. The latest count is Yes - 12, No - 217, Undecided - 24.

The second (which can be found at the bottom of this linked page) asks "Are you satisfied with the changes made in the $700 billion Wall Street Bailout?" Again, there are three answer options, yes, no or undecided. The latest count is Yes - 10, No - 36, Undecided - 12.

The website is read daily by New Hampshire's congressional delegation and its staffs, as well as by most of the state Democratic Party leaders. I think it's important that they see how Democrats and Progressives feel about this bailout plan and the proposed changes to Paulson's original plan.

Thanks

[liberal renegade]

2. They

don't give a shit about us, they're going to pass it whether we like it or not.

[OakCliffDem]

3. Corruption, sleaze, incumbents being thrown out of office?

There are only two reasons out of the five that are needed (both listed by the OP)
1. It could make it worse
2. It could make it worse

Not to mention it just lines the pockets of the rich even after they fail

[ShortnFiery]

4. Somebody needs to "key in" both Pelosi and Reid. They are pissing their constituents off.

We know better, Nancy. The Corporate Cronies overseas bail-out is off of the table!

[depakid]

5. "organized by a University of Chicago professor"

Yep the University of Chicago school. That about says it all.

Sorry David, I'm going with Paul Krugman's take.

[riverdeep]

6. There are professors from all institutions that are against this.

Krugman was wrong about a lot of things. Including not thinking Obama would get the nod.

[depakid]

8. On economic matters- Krugman has been remarkably prescient

Read the great unravelling and see for yourself.

It's almost scary.

No thank you, I've seen the list and am not terribly interested what the Milton Friedman type crowd has to say. Their ideas got us here in the 1st place.

[riverdeep]

10. In the body of the article are included other people who saw this coming,

and disagree that it's a good idea. Also included is Dean Baker who teamed up with Krugman on a paper. This is not just some ultra conservative types who would rather watch the economy tank than introduce obvious elements of socialism, there are objectors across the board.

[riverdeep]

7. Dupe.

[HamdenRice]

15. The "Chicago Boys," like some DUers are shouting "let it collapse"

Only difference is the Chicago Boys have a plan for after the collapse, and it isn't pretty. But at least we know what it is thanks to Naomi's "Shock Doctrine."

DU's "let it colllapse" contingent, by contrast, has no plan for the "morning after," so the disaster capitalists will have a field day.

[riverdeep]

9. What's interesting is he said candidates are ALREADY running ads.

The bill hasn't even passed and this is already fodder. Any politician stupid enough to support this deserves to kicked out of office, Democrat or Republican.

I can't believe I'm saying this but, it seems like to those of us that want to see this tank, our only hope is Republicans torpedoing it, with maybe some courageous (or scared shitless, I don't care) Dems joining them.

[depakid]

11. So you would simply do nothing and watch the economy collapse?

Wow.

Maybe Americans really do deserve this.

[lib2DaBone]

12. There are many alternatives. This bill is a disaster and a lie......

[depakid]

13. How so- and what are they

You sound just like another ideologue to me who doesn't have a clue.

[HamdenRice]

14. How could any one read the first paragraph and take him seriously?

"When an individual consumer uses a new credit card to pay off astounding debt from an old credit card, it's akin to check kiting, which is is illegal. Apparently, though, when the government does it, it's billed as Serious Public Policy. Because that's what this supposedly prudent bailout bill would do: Force taxpayers to borrow $700 billion from foreign banks to pay off the bad debt of Wall Street banks."

Once someone demonstrates an almost complete lack of economic literacy, why would I trust his economic analysis?

How is this the Treasury paying off the debt of Wall Street banks? The securities the Treasury would purchase are not debts of Wall Street banks. To the banks (and they are mostly not Wall Street banks), they are assets, even if now they are bad assets. So in no way are the feds paying off any bank's debt. The debt that the feds would be purchasing is the debt of millions of homeowners.

Needless to say, it is in no way like kiting a check. There are parts of the financial system that are like kiting a check -- commercial paper markets are basically a giant post dated, kited check market -- but this isn't one of them.

If a progressive writer -- a writer who often gets the politics right, by the way -- doesn't seem to have the foggiest notion of what the bailout is, why would you trust any part of his analysis?

[Douglas Carpenter]

16. Dave Sirota is a great guy and a brilliant political writer, but he is also a rigid ideologue and an

economic illiterate. If it was a matter of pure ideology, I would be against the bipartisan recovery package too.

There are better plans for sure. But what there is not, are better plans that would gain at least the grudging support of the Congressional Democratic Leadership like Chairman Barney Frank, Chairman Chris Dodd and Sen. Obama, as well as the support of the White House, the Treasury Department, the Federal Reserve Chairman, and the House and Senate Republican leadership and Sen. McCain. Any plan that does not have this kind of broad bipartisan and multi-ideological support, albeit grudging support, is not a plan that is on the table and thus is not a proposal that can actually be enacted. It is just pontificating into the wind.

Anyone who thinks that time is not of essence, or who thinks this is some kind of Bush Administration, "mushroom cloud" hoax, should clue themselves into the international markets right now. Every public financial market in the whole world, especially the credit markets, are nervously watching and waiting. Without relief and relief, very, very soon, credit will evaporate within days, if not hours. All the market data from every financial market on earth confirms this undeniable fact.