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Ten Reasons Why Bush's Proposed Bailout Is Larceny
Taxpayers Foot the Bill, Bankers Keep Profits and Compensation
By Deborah White, About.com
Armed with fearfully catastrophic predictions reminiscent of the rushed run-up to the Iraq War, the Bush White House now insists that complete collapse of the world economy is imminent if the Bush administration isn't IMMEDIATELY given a blank check for up to $1 trillion to dole out to the ailing financial services industries and its richly paid executives.
Wall Street Gets Bailed Out by Me When I'm Getting Screwed?
Explains noted economist Robert Reich at TPM Cafe1:
"The public doesn't like a blank check. They think this whole bailout idea is nuts. They see fat cats on Wall Street who have raked in zillions for years, now extorting in effect $2,000 to $5,000 from every American family to make up for their own nonfeasance, malfeasance, greed, and just plain stupidity.
"Wall Street's request for a blank check comes at the same time most of the public is worried about their jobs and declining wages, and having enough money to pay for gas and food and health insurance, meet their car payments and mortgage payments, and save for their retirement and childrens' college education.
"And so the public is asking: Why should Wall Street get bailed out by me when I'm getting screwed?"
Wall Street, of course, wants the public to believe that this "deal" is too complex for the American people to understand. That's nonsense.
Below are ten quick-reading reasons why this bailout proposal is more a last-chance greedy power grab by the Bush administration than a vital move to protect the American people.
TEN REASONS WHY BUSH'S PROPOSED BAILOUT IS LARCENY
* 1. Lack of accountability or transparency, resulting in a "blank check" of up to $1 trillion. Section 8 of the Draft Proposal for Bailout Plan2 reads, "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion... "
That means that the American people can never review and will never know how the $1 trillion was spent by the Bush administration.
* 2. Lack of legal recourse for inappropriate use of $1 trillion in funds. Section 8 of the Draft Proposal for Bailout Plan3 concludes, "... and may not be reviewed by any court of law or any administrative agency."
That means that no matter how the Bush administration spends the $1 trillion, they can't be sued or otherwise held liable for it. Even if the funds are used fraudulently or for any improper or unrelated purpose.
* 3. Lack of specific or objective criteria to determine who should be bailed out, which could result in cronyism, fraud, favoritism based on political affiliation or other misuse of taxpayers' funds.
Recipients of bailout funds are determined solely by the Treasury Secretary. There are no financial benchmarks, nor prohibitions of giving funds to related parties or based on partisan or other discriminatory factors. There are also no prohibitions of kickbacks.
* 4. Lack of specific valuation criteria for "illiquid assets" acquired by the federal government, which would result in overpayments to institutions who made or purchased the bad investments.
The Bush bailout plan is silent on what price the Treasury Secretary must pay the financial services industry to bailout their bad mortgage loans. Will the Secretary pay fair market value (i.e. what the "illiquid asset" is worth today) or will he pay the premium value of what the bad loan used to be worth before the market dropped?
This is important because if the Secretary pays the higher premium price, then American taxpayers are automatically stuck with losses that likely can never be recouped.
Normal business, and consumer, practice is to pay for an asset what it's actually worth on that day (i.e. fair market value). Princeton economist Paul Krugman describes4 "having taxpayers pay premium prices for lousy assets" as "in effect throwing taxpayers’ money at the financial world."
For more, see Concerns about the Treasury Rescue Plan5 by the Brookings Institute.
* 5. Lack of plan, budget or staff to oversee and account for this massive new Treasury Department function, which will inevitably cause a significant expansion in federal government bureaucracy.
This would be a massive undertaking on an unprecedented scale, and would cost billions of dollars in new federal government bureaucracy needs.... costs that would be passed on (coincidentally?) to the next presidential administration, and not borne by George Bush.
And yet, Section 76 of the Bush bailout plan gives unlimited powers to the Treasury Secretary: "Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure."
* 6. Lack of reform or regulation of, or any measure control over, institutions bailed out. Incredibly, the Bush bailout plan requires no changes in the failed practices of the financial services industry.
Economist Robert Reich is spot-on when he writes that7 as a bailout condition, Wall Street firms must "agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation.
The regulations would "emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess."
Sep 22 2008
# 7. Lack of restrictions on salaries, bonuses, stock options or any other compensation for executives bailed out. Treasury Secretary Henry Paulson, former chairman of Goldman Sachs, one of the world's largest investment banking firms, regards limits on compensation of Wall Street executives as a "poison pill."8
The Bush bailout plan proposal is silent on limits on salaries, bonuses, stock options or any financial penalties of any kinds for executives of firms bailed out by taxpayers.... despite that fact that top investment firm executives each take home millions annually.
For a glaring example, see Fury at $2.5 Billion Bonus for Lehman's New York Staff9.
In essence, Wall Street executives are protected by the Bush bailout plan, while "Main Street" Americans take 100% of the fiscal responsibility for the executives' bad decisions.
# 8. Lack of punitive measures for institutions or executives bailed out. Likewise, the Bush White House proposal for bailout plan10 is entirely silent on punitive measures or penalties for either the firms bailed out or or the executives of those firms.
# 9. Lack of any homeowner protections or any for individual investors. No protections of any kind are given to homeowners whose mortgages may be foisted on the federal government. In fact, the Bush White House proposal for bailout plan gives the Treasury Department several incentives to accelerate foreclosure on homes to generate more cash for Treasury Department use.
# 10. Lack of any plan to reimburse taxpayers, and lack of any plan to recoup taxpayer losses on these bad loans from future profits of institutions that made these bad loans.
At best, taxpayers will see only partial repayment of bad mortgage loans bought by the Treasury Department for two reasons: 1. The Treasury Department plans to pay premium prices to the bailed out banks, and 2. Under the Section 7 of Bush's Proposed BailoutPplan, "... the Secretary may use the proceeds of the sale of any securities issued... including (for) the payment of administrative expenses."
At worst, of course, Americans taxpayers will see no repayment at all.
Bottom line: The Treasury Department plans to spend proceeds from the sale of foreclosed homes, and they aren't accountable to anyone for how they spend those funds, no matter how inappropriate or even fraudulent the expenditures. Summary of Bush's Blank-Check Bailout Plan
In summary, under the Bush administration's Draft Proposal for Bailout Plan11, the biggest institutions in the financial services industries would be protected from their losses and the executives would be shielded from any negative consequences.
U.S. taxpayers carry the burden (i.e. own) of up to $1 trillion or more of "illiquid assets," for which there is no plan or budget to collect the "assets" in order to reimburse taxpayers. This is the equivalent of a new tax on every U.S. household of from $2,000 to $5,000.
Meanwhile, those bailed out suffer no financial consequences and retain all present and future profits. And the brokers, realtors and investment bankers keep all their rich profits and commissions from these loans gone bad.
The End Result
The end result?
By the grace of good timing, the Bush administration's $700 billion to $1 trillion bail-out plan for its donors, cronies and pals in the financial services industry will cripple the next president from undertaking universal health care, strengthening public education, shoring up Social Security, and so much more that... coincidentally?... the Bush administration despises.
All this just six weeks before the '08 presidential election, and just one short week before Congress adjourns until after the election... when Republicans and the Bush administration will presumably lose all opportunity to push legislation of this gargantuan magnitude.
Coincidentally fortuitous timing or one last ultra-greedy power grab by the cynical Bush administration?
Based on the Bush administration's checkered history, I vote for the latter.
* TPMCafe: What Wall Street Should Do To Get Its Blank Check12 by Harvard and UC Berkeley economist Robert Reich, former U.S. Secretary of Labor
* New York Times: No Deal13 by Princeton economist Paul Krugman
* Brookings Institute: Concerns about the Treasury Rescue Plan14
* Politico.com: Many Economists Skeptical of Bailout15
* ThinkProgress.com: Bush’s Legacy Of Squandering Taxpayer Money16
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