This is a guest post from my partner Rebecca who knows more about matters financial than I do. She's smart.
It seems the Bush administration has suddenly woken up, looked around, and been shocked to discover that its friends and allies in the financial world are losing a lot of money. For months ordinary people have been losing their homes, while Bush & Co. pressed the snooze button. Now that the slime has begun to touch the Big Boys of Wall Street, they're hitting the panic button instead.
The New York Times reports this morning that Treasury Secretary Henry Paulson and President Bush are asking Congress for "far reaching emergency powers to buy hundreds of billions of dollars in distressed mortgages despite many unknowns about how the plan would work."
If Congress does what Bush & Co. are asking for, the result will be the SLIME Act of 2008. Under Bush's plan, the government would not even administer this cesspool of bad debt. Paulson says that the Treasury Department will hire "professional investment managers" to run the most expensive government program ever undertaken in this country. Professional investment managers? Aren't they the guys who got us into this mess in the first place?
That's why I call the Bush plan the S.L.I.M.E. Act. It's the Successful Looting and Investment Manager Employment Act.
The Times is right about the "unknowns," but I'd like to suggest a few things we do know about the Bush plan:
1) It's not a plan. It's a set of broad new powers for the Treasury department. Bush and Treasury Secretary Henry Paulson are asking for a blank check from us to buy up somewhere between 500 billion and a trillion dollars worth of almost worthless securities from Wall Street banks and investment firms. The theory is that the government will be able to turn around and sell these securities (which are basically bundles of sliced-up bad mortgages) to recoup some of that "investment." But if the banks can't sell them, why should we be able to?
2) These new powers would seem to have no limits -- on time or money. There's no ceiling on the amount to be spent or on how long the Treasury department will be permitted to go on buying bad investments from banks that make bad bets.
3) We the taxpayers are not just "taking over" bad assets from the banks that own them. We will be buying them. Nothing in the Bush "plan" says who will set the price, or how high the price can go. The more the banks can get for these securities, the smaller the loss for their investors. They have every incentive to set the price as high as possible. And Bush & Co. have every incentive to scratch the backs of their Wall Street buddies and go along with that high price.
Remember that back in the 1980's the biggest thievery happened after the Reagan administration set up the Resolution Trust Corporation to buy up the failing assets of savings & loans institutions. The government paid top dollar then, and a lot of rich people got richer even as the institutions they had been running went under.
4) There's no rush. Yes, the financial sector of the economy is in real trouble. But this problem didn't appear over night. In fact, it started back in the Clinton administration, when Congress undid bank regulations that had been in place since the Depression. If it took ten years to get us into this mess, Congress can take more than ten days to get us out of it.
Congress should take the time to make sure that any bailout for the banks and investment firms also includes:
- Mortgage relief and renegotiation for people at risk of losing their homes
- Clear price limits and negotiation mechanisms for purchasing bad assets
- Plans for re-regulating the banking and investment industry
- As little S.L.I.M.E. as possible!