ARTS & FARCES internet

On 23 September, US Treasury Secretary Paulson told the US Senate Banking Committee, “Some said we should just stick capital in the banks, take preferred stock in the banks. That’s what you do when you have failure. This is about success.”

On 10 October, Paulson said, “We can use the taxpayer’s money more effectively and efficiently, get more for the taxpayer’s dollar, if we develop a standardized program to buy equity in financial institutions.”

It’s time for Paulson to admit that he hasn’t a clue, has politicized the issue, and to step aside.

If the credit markets have, in fact, seized—and I’m not sure I believe they have—the resolution is straightforward, costs the US taxpayers nothing, but requires a backbone in US agencies and our elected representatives. At 7AM on Monday the US Treasury, Comptroller of the Currency, and Federal Deposit Insurance Corporation (FDIC) jointly announce that one of the core functions of banks is to make good loans. If said banks don’t immediately start making good loans they no longer meet the criteria of being a bank and will have their banking licenses revoked starting at 7AM on Tuesday. Deposits will immediately be seized and auctioned to banks willing to make good loans. Concurrently, the US Congress has to magically grow the appropriate anatomy and immediately reenact the Glass-Steagall Act in its entirety. If there’s something I’ve missed with this scenario, please advise.

Update: Sunday, 12 October 2008 1:20PM CDT: This, of course, has to be coupled with the banks writing down their questionable assets to their true values and the government helping recapitalize them. If the banks don’t revalue these assets—and do it now—as Thomas Friedman says, the market will do it for them.

Just days—days—after the US government bailed out AIG to the tune of US$85 billion and the US citizenry collectively entered the insurance business, AIG executives headed to the St. Regis Resort in Monarch Beach, CA. While there, the company’s executives ran up a US$440,000 bill—US$200,000 for rooms, US$150,000 for meals, and US$23,000 for the spa. The royal we wonder where the remaining US$67,000 went, but that’s what imaginations are for.

Representative Henry Waxman (D-California) totaled up the figures in today’s House of Representatives committee hearing about AIG’s close call with the financial reaper. “Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation,” Waxman said.

Sadly, but perhaps unsurprisingly, AIG executives continue to draw multimillion-dollar paychecks. In fact, documents provided by AIG to Waxman’s committee indicate that “as the company’s risky investments began to implode, the company altered its generous executive pay plan to pay out regardless of such losses,” according to Peter Whoriskey’s Washington Post account. In March, after having lost more than US$5 billion in the fourth quarter of 2007, AIG chief executive Martin Sullivan urged the company’s compensation committee to “ignore those losses” and award bonuses. Which, of course, it did, awarding Sullivan a cash bonus in excess of US$5 million and a golden parachute of US$15 million.

Ob-La-Di, Ob-La-Da.

Update: Thursday, 09 October 2008 05:37AM CDT: On Wednesday, the US Federal Reserve announced that it would lend AIG an additional US$37.8 billion. Sigh.

Not that there’s much of anything left, but if you’re fed up with the lack of progressive action in Washington, you might want to consider this pledge.

“What does taking the pledge mean? It means that when Democratic ‘leaders’ tell Americans we must settle for watered-down solutions while bold back-benchers in the House or Senate are pushing strong progressive alternatives, we will clamor for those bold alternatives together until they are passed into law.”

I ordinarily detest this kind of stuff, but this is what it’s come to. I’m not a Democrat, but I’m willing to do what I can to get a fair hearing for the few true US Congressional progressives.

As Jane Hamsher said two years ago: “better parking spaces for Democrats” is not a worthy goal. It’s time to take the government—and our Constitution—back.

While we were all busy looking at the financial crisis and its attendant bailout in the US government’s flailing, waving right hand, the left hand of the US government was quietly and deftly bailing out the Detroit automobile industry to the tune of US$25 billion. The bailout was included in a bill allowing the offshore drilling ban to expire.

This particular bailout takes the form of a “loan,” except the loan payments are deferred for five years, making the cost to US taxpayers US$7.5 billion.

But wait, there’s hope. The bailout failed Monday in the House of Representatives vote, 228-205. Ian Welsh, writing at firedoglake, outlines four horrific provisions in the proposed bailout:

1. Changes the worth of a security from what someone will pay for it to what a mathematical model says it will be worth at maturity
2. Reduces mandatory reserve levels for banks to zero
3. Any equity position taken by the government will be non-voting
4. The bailout isn’t restricted to banks owned by US companies; virtually anyone can play

Why are the Democrats smiling like they just hit the lottery? Because they did. The Congressional leaders and the White House have apparently reached an agreement on the US$700 billion bailout of the super-rich. They’re overjoyed because the spotlight on them for allowing this to happen has been extinguished (they think) and they can scurry home to campaign for re-election.

When I began writing this, the New York Times had a completely different image accompanying its story, one with everyone in the frame laughing almost uncontrollably. Why was the photograph changed to the current one where everyone looks much more sedate? And why is the original image simply nowhere to be found?

And just what does the American taxpayer get for taking on this enormous, no-hope-for-a-balanced-budget ever again, staggering debt load? Pretty much a bag of rocks:

• Limits on some (but not all) executive compensation whose firms take part in the bailout.
• Requirements to make “aggressive efforts” to prevent home foreclosures (but no actual, specific requirements or plan).
• Equity in some (but not all) companies that participate in the bailout.
• Oversight by a Congressional panel (that’s right—the same Congresscritters that allowed this to happen are going to be overseeing this mess).
• “Conflict-of-interest” rules (unspecified, natch) for the same financial firms that caused this mess who get to run the bailout.
• Provided an option for the Treasury Secretary to issue government insurance on the toxic assets (like trying to insure a house that’s already on fire). The creation of the insurance program is mandatory but it’s implementation is not.

What a deal. Except we don’t know for sure because, as Lori Montgomery and Paul Kane report in the Washington Post, full details of the bailout plan have not yet been released. This performance, after all, is solely for the benefit and consumption of the foreign markets that open later today.