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This is going to hurt

The $750 billion financial bailout is turning into a scam rivaled only by the practices of the financial sector that precipitated this signal disaster. The geniuses overseeing this "rescue" thought it would be dandy to save Bear, Sterns — but then let Lehman Brothers collapse. They pumped $45 billion into Citigroup — which went out and bought a $50 million corporate jet. Merrill's "savior" CEO was redecorating his office to the tune of more than $1 million while headed into a shotgun marriage with Bank of America — which is now begging for more bailout billions because of Merrill's disastrous bets. AIG and the rest of the gang handed out billions in bonuses while their hands were out for the taxpayers money. And the system is still sick, reeling afresh with any day's new shock.

Maybe $300 billion of the TARP money has been committed — maybe more. Then there are perhaps trillions in dollars printed out and essentially given to the big banks through Federal Reserve "lending facilities" — which the Fed is keeping secret. Behind the scenes, the big banks continue to lobby and squeeze members of Congress. In exchange for the taxpayer money, it's unclear what the taxpayers get in return, whether any of the bailout money will ever be paid back. These guys make Bernie Madoff look like the Better Business Bureau.

Now the cognoscenti are talking about nationalization as the answer — whatever "nationalization" means. As the New York Times reports,

That has already happened; taxpayers are now the biggest shareholders
in Bank of America, with about 6 percent of the stock, and in
Citigroup, with 7.8 percent. But the government’s influence is far
larger than those numbers suggest, because it has guaranteed to absorb
the losses of some of the two banks’ most toxic assets, a figure that
could run into the hundreds of billions of dollars.

As one of many who were punked by Paulson in the original panicked rush to pass the bailout, I say let's take a deep breath, stop, look and consider:

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A simple primer on the banking crisis

The more I learn about the $750 billion bailout of derivatives, tranches and collateralized debt obligations, the more I think about drunks. The true drunk will do anything to keep drinking. Cheat. Steal. Betray. No one is above his treachery. He will destroy his family to get the next drink. On a binge, he will spend the wealth it took his family generations to accumulate, right down to the treasured mementos. He can be clever, fun, charismatic. Behind this mask he is a monster. At his most destructive, he wraps his addiction in layers of complexity and opacity, which non-drunks would simply call lies.

Substitute "banker" for "drunk" and I think we have a better understanding of the mess we're in. Consider State Street Bank. Its shares plunged 59 percent Tuesday as it revealed previously "unrealized losses." That's the drunk telling his wife he's wiped out the family savings. Citigroup and Bank of America shares are cheaper than value meals at McDonald's — territory we saw with the late Washington Mutual on the way to failure. That's the drunk in the gutter. The difference is they don't know they've hit bottom and must fundamentally change. They just want another drink.

They call it capital, and the last bar open is the federal Treasury.

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President Hoover and Depression thinking

I feel the need to come to the defense of Herbert Hoover, if for no other reason than this fundamental misreading of history will only set us up for costly mistakes in the future. The left long has labeled George W. Bush "President Hoover" for presiding over a historic economic crisis. Now the meme has been picked up by the right, as well.

Yet to paraphrase Lloyd Bentsen, President Bush, you're no Herbert Hoover. Among the differences: Hoover (1874-1964) was a self-made man, who worked his way through the new Stanford University, made a fortune as a brilliant engineer, then gained international acclaim for coordinating relief for refugees in World War I. Although a Republican, Hoover came from the party's Theodore Roosevelt progressive wing. He was mistrusted by Calvin Coolidge, and for good reason. Hoover wanted to move away from the rapacious capitalism of the 1920s to an ethic that embraced the common good and the obligations of business to society. He was a product of his time of scientific and engineering wonders: The Great Engineer, who could bring pragmatic, fact-based solutions to governing.

Unfortunately, Hoover was elected in 1929, not 1912 — the era in which his worldview had been shaped. After the great crash and with the gathering depression, Hoover was overwhelmed. His administration launched the greatest expansion of government intervention in the economy up to that point, including programs and ideas that would live on in the New Deal. Yet it did little good as unemployment reached a staggering 25 percent and Americans were forced into shantytowns they called Hoovervilles.

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Missing the point on a Detroit rescue

An industry that has been poorly managed, with executives looting it for huge bonuses and protected employees compensated far beyond the average American, making products that have caused untold damage to the planet, comes to Washington seeking a bailout. Without it, the executives say, the entire economy could be severely damaged. Of course lawmakers should say "hell no."

But they didn't. When the so-called financial services industry asked for a "rescue," lawmakers couldn't move fast enough.

American automakers are a different matter. Asking a fraction of what has been plowed into Wall Street — with not much to show for it — they are getting the brush off from the Bush administration and much of Congress. Myths proliferate about union compensation, this from the same people who hail obscene executive compensation and bonuses for the top swindlers on the Street. In fact, the union has been giving back for 20 years.

It's striking that the same people who celebrate the bootstrapping entrepreneur and the sanctity of contract are contemptuous of blue-collar workers who have created most of the wealth in a given business and painstakingly negotiated labor agreements that allowed their families to reach the middle class. And there's much carping about how the top executives failed to build cars for an expensive-energy future or to protect the environment. Yet policymakers consistently refused to insist on even modest improvements. Now it's so easy to say to Detroit: Drop dead.

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The Paulson scheme

If you've ever wondered why these CEOs make hundreds of millions of dollars even if their companies are laying off thousands, their remaining employees have largely seen their paychecks stagnate and their stocks are circling the drain… If you've ever wondered whether you, or even the office boy, could have done a better job…consider the case of Henry M. Paulson Jr., the Secretary of the Treasury and former chief executive of Goldman Sachs. As is now becoming clear, Paulson has little more clue than the office boy about addressing the financial crisis.

After more than a year of denying the gathering storm, he suddenly rushed to Congress demanding an open-ended bailout of Wall Street, "to save the financial system." First the plan was to buy the "toxic debt" that had brought down much of the system. He was urged to inject capital directly into banks but rejected this advice. When the credit system seized up he changed the bailout to…inject capital directly into the banks. Yet the banks still refuse to do much lending, even as they use the taxpayers' money to buy competitors and pay fat compensation to their executives. Now the bailout has been changed yet again, to help "consumers." Well, not exactly: money would be given to companies dealing in credit cards, car loans and student loans. Don't expect any help personally.

Meanwhile, the real economy keeps spiraling downward as 401(k)s are vaporized, a million people have lost their jobs this year, the retail sector is moving into bankruptcy court and Detroit is facing collapse. This is one last gift of the Bush administration. Paulson's actions aren't incompetence on the level of Brownie — a political hack put in a critical position he for which he was completely unprepared. They may be worse.

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Yet another financial swindle sneaks into the ‘rescue’

So what did Americans really get when Congress approved a bill giving the Treasury power to spend some $700 billion to stem the financial panic? It's becoming clear that Treasury Secretary Hank Paulson has mishandled the crisis in typical Bushian fashion. First with incompetence, by allowing the investment banking sector he came from to march over the edge of the abyss over the past year, long after it the cataclysmic risks to the system were clear. Then, in mad improvisation, he allowed Lehman to fail. He refused congressional suggestions of a direct capital infusion into the banks — until it was clear it "buy toxic debt" scheme wasn't working and Britain and the EU led the way with direct infusions. Brownie, call your office.

Also typically Bushian was the stampede to act, on a bailout plan with no oversight that would have given Paulson unprecedented power. Iraq, anyone. Congress made some oversight improvements, and Obama has made it clear he will alter the "rescue" further if he wins the White House. But everybody had a gun to his or her head to "do something" as the markets collapsed.

Of course, we're not dealing with drowning poor, black folks in NOLA, here. So ultimately, the administration was willing to take any "socialist" action to save its wealthy friends in the investment banks, the hedge funds, etc. So maybe the Brownie analogy is not quite right. Yet we should be on guard. Remember another hallmark of Bush governance: enriching the politically connected and powerful through privatization. How could that happen in the "financial rescue"?

Now it's becoming clear

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To bail or not to bail?

Let’s set aside the demands of the extremists on the right, calling for more deregulation and tax cuts to address the financial crisis. It’s like trying to discuss the finer points of Plato with a small, yapping dog. Otherwise, I can understand the desire on the left and right to "punish Wall Street" by defeating the bailout plan. Unfortunately, the markets are so intertwined and inherently fragile, the first casualties are going to be on "Main Street" (a bittersweet anachronism for a nation that has mostly abandoned its main streets).

Wall Street — and increasingly overseas investors — owns Main Street.

The plan voted down yesterday was flawed but better than the original Czar Paulson contraption, which would have given the former head of Goldman Sachs unlimited access to use American treasure trying to extinguish the wildfire he and his greedy buddies started. Well, not quite — and here we get back to the unworkability of "punish Wall Street" argument. Deregulation, a casino-like attitude on Wall Street and a bubble-blowing Fed were the biggest culprits in the mess. But, so, too were the American people.

We voted in the deregulators and stood cow-like as it happened, the jobs disappearing, wages stagnating. Worse, too many of us thought we could get rich quick off real estate, like day trading before it. We bought overside houses and ran up credit-card debt we couldn’t afford. We bought SUVs to drive ever-longer distances as oil was peaking. We wanted tax cuts that gutted our schools and infrastructure. We wanted all that stuff at Wal-Mart. The casino became our ruling totem. It’s quite a remove from the generation of the Boomers’ parents that saved and waited to make purchases until it could afford them. It’s their passed-along wealth that is helping cloak the "banana republic with nukes" that we’re becoming.

So here we are. Were it not for the legacy of Franklin Roosevelt, we would already be seeing bread lines. And how many better ways could we use $700 billion…

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