Trying to gather any understanding of the financial chaos, worldwide, is hard. Very hard for most of us. Certainly hard for people like Paulsen, Bernanke, and Greenspan. Paulsen, in a matter of months, has gone from everything is manageable to we must throw the kitchen sink at the problem in five days or disaster will result. With few exceptions, individual Congressmen are trying to catch up with the daily turns. Some, no doubt, don’t have a clue to what is going on. How did it get so complex? There are a few things most independent-minded people could agree on, which may not provide solutions, but does offer some understanding.
Here they are:
1) At the political level the interest of Wall Street has denominated national politics since 1980. Some could argue that their dominance started even earlier. In the broadest sense Wall Street has funded decades of congressional elections and presidential campaigns. Wall Street has captured both major political parties with money and the dogma of jobs, progress, and global trade. They have used this political power to sponsor policies consistent with their self-interest. Those of us who have observed the Wall Street ethos over the last three decades have noticed they are quick to espouse Adam Smith and free market capitalism. However, the facts seem to run quite different. More likely you will see Wall Street as :
-favoring a big and generous federal government.
- content with oliopolies and monopolies.
- distrust the public, (the populist).
- unethical climate. Steady trail to the jail house.
- see nationalism as a threat to “globalization.”
- have attracted more “hustlers” than investors.
The great irony of all this mind-set is that business has enjoyed the perception of being political conseratives.
2) The debt limit had to be raised to 10.6 trillion with the Fannie and Freddie nationalization. Paulsen’s plan would raise it to $11,315,000,000,000. This is a total disregard for the next three generations. The new, highly competitive world economy will not permit a quick erasure of this indebtedness. Pressed to its logical end the national debt and its accompanying interest will force the collapse of the dollar and national government default,
3) The current crisis was accelerated when Alan Greenspan and Federal Reserve Board of Governors provided free money in 2004 and 2005. We could have our cake and eat it too; no correction, no suffering, just up, up, and away.
4) The American government and the American people are dangerously leveraged. The saving rate has dipped negative, but has went from a steady 7% to 11% for decades to 0-2% since 1999. That makes these times difficult to deal with.
Now for the PAULSEN PLAN. I have just read the proposed legislation that Congress is dealing with tonight. I am astonished that such a power grab would be requested, considered, and maybe even become law. Thankfully, the becoming law, as proposed, looks doubtful tonight. The plan is a disaster. Section 8 of the proposed legislation reads: Decisions by the Secretary pursuant to the authority of this Act are non reviewable and committed to agency discretion and may not be reviewed by any court of law or any administrative agency. Unbelievable!
I have read and listened to all the horror stories about doing nothing in regards to this panic. Yet, I am not convinced we need a bail out. Somehow, I think the problem could self-heal and save 700 billion. In this growing world economy I cannot believe that capital will not find it’s way to where it is needed most at the most advantagious price. The plan wants to pick up bad mortgage paper, but assets continue to fall and they are not limited to mortgage assets. Paulsen has failed in three attempts to quell the banks melt-down dilemma. It is good to try to keep financial institutions in business, but it is quite another to forgive their failures. Paulsen wants to resestablish banks balance sheets without penality. It should be a dollar for dollar deal, which means taxpayers should not absorb losses by overpaying for assets without any corresponding compensation. That sounds like ownership, but is much like the S&L crisis of the 80’s. The bail-out closed, but it ended up costing the taxpayers 125 billion and more.
Believing the threats that Congress is now facing if they don’t act quickly presents a pick-your-own-poison. The Treasury plan will likely crash the dollar and bankrupt the country. The bottom line on that outcome is that we are not in shape to handle a bail out of the trillion dollar magnitude in a descending economy. Should Congress linger or do nothing more large banks may fail and that would bankrupt the country.
Paulsen don’t want the “fix” to be punitive, but it has to be ! Otherwise, should this plan actually be successful, the people who made the mess would actually receive a windfall at taxpayer expense. They would be rewarded for their failures. That would be an immoral outcome. However, a plan that repaid the taxpayer, the effective owner, would not be detrimental to the plan and yet be just.
We know the Bush Administration has not been famous for placing talent, but appointing a Wall Streeter(Paulsen,formally with Goldman) to discipline Wall St. seems a bit much. Wall Streeters protect their own. Treasury plan is certainly an example of protecting the wrong people. The political power of Wall Street is the first thing that needs to be checked. After that, things could fall in place.