m***@use.net
2008-10-31 16:18:23 UTC
Naomi Klein: Bailout = Bush's Final Pillage
By Naomi Klein, The Nation. Posted October 31, 2008.
The bailout has been designed to keep stealing from the Treasury for
years to come.
In the final days of the election, many Republicans seem to have given
up the fight for power. But that doesn't mean they are relaxing. If
you want to see real Republican elbow grease, check out the energy
going into chucking great chunks of the $700 billion bailout out the
door. At a recent Senate Banking Committee hearing, Republican Senator
Bob Corker was fixated on this task, and with a clear deadline in
mind: inauguration. "How much of it do you think may be actually spent
by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old
former banker in charge of the bailout.
When European colonialists realized that they had no choice but to
hand over power to the indigenous citizens, they would often turn
their attention to stripping the local treasury of its gold and
grabbing valuable livestock. If they were really nasty, like the
Portuguese in Mozambique in the mid-1970s, they poured concrete down
the elevator shafts.
The Bush gang prefers bureaucratic instruments: "distressed asset"
auctions and the "equity purchase program." But make no mistake: the
goal is the same as it was for the defeated Portuguese -- a final
frantic looting of the public wealth before they hand over the keys to
the safe.
How else to make sense of the bizarre decisions that have governed the
allocation of the bailout money? When the Bush administration
announced it would be injecting $250 billion into America's banks in
exchange for equity, the plan was widely referred to as "partial
nationalization" -- a radical measure required to get the banks
lending again. In fact, there has been no nationalization, partial or
otherwise. Taxpayers have gained no meaningful control, which is why
the banks can spend their windfall as they wish (on bonuses, mergers,
savings...) and the government is reduced to pleading that they use a
portion of it for loans.
What, then, is the real purpose of the bailout? I fear it is something
much more ambitious than a one-off gift to big business -- that this
bailout has been designed to keep pillaging the Treasury for years to
come. Remember, the main concern among big market players,
particularly banks, is not the lack of credit but their battered share
prices. Investors have lost confidence in the banks' honesty, and with
good reason. This is where Treasury's equity pays off big time.
By purchasing stakes in these institutions, Treasury is sending a
signal to the market that they are a safe bet. Why safe? Because the
government won't be able to afford to let them fail. If these
companies get themselves into trouble, investors can assume that the
government will keep finding more cash, since allowing them to go down
would mean losing its initial equity investments (just look at AIG).
That tethering of the public interest to private companies is the real
purpose of the bailout plan: Treasury Secretary Henry Paulson is
handing all the companies that are admitted to the program -- a number
potentially in the thousands -- an implicit Treasury Department
guarantee. To skittish investors looking for safe places to park their
money, these equity deals will be even more comforting than a Triple-A
rating from Moody's.
Insurance like that is priceless. But for the banks, the best part is
that the government is paying them -- in some cases billions of
dollars -- to accept its seal of approval. For taxpayers, on the other
hand, this entire plan is extremely risky, and may well cost
significantly more than Paulson's original idea of buying up $700
billion in toxic debts. Now taxpayers aren't just on the hook for the
debts but, arguably, for the fate of every corporation that sells them
equity.
Interestingly, Fannie Mae and Freddie Mac both enjoyed this kind of
unspoken guarantee. For decades the market understood that, since
these private players were enmeshed with the government, Uncle Sam
would always save the day. It was the worst of all worlds. Not only
were profits privatized while risks were socialized but the implicit
government backing created powerful incentives for reckless
investments.
Now, with the new equity purchase program, Paulson has taken the
discredited Fannie and Freddie model and applied it to a huge swath of
the private banking industry. And once again, there is no reason to
shy away from risky bets -- especially since Treasury has not required
the banks to give up high-risk financial instruments in exchange for
taxpayer dollars.
To further boost confidence, the federal government has also unveiled
unlimited public guarantees for many bank deposit accounts. Oh, and as
if this wasn't enough, Treasury has been encouraging the banks to
merge with one another, ensuring that the only institutions left
standing will be "too big to fail." In three different ways, the
market is being told loud and clear that Washington will not allow the
country's financial institutions to bear the consequences of their
behavior. This may well be Bush's most creative innovation: no-risk
capitalism.
There is a glimmer of hope. In answer to Senator Corker's question,
Treasury is indeed having trouble dispersing the bailout funds. It has
requested about $350 billion of the $700 billion, but most of this
hasn't yet made it out the door. Meanwhile, every day it becomes
clearer that the bailout was sold on false pretenses. It was never
about getting loans flowing. It was always about turning the state
into a giant insurance agency for Wall Street -- a safety net for the
people who need it least, subsidized by the people who need it most.
This grotesque duplicity is an opportunity. Whoever wins the election
on November 4 will have enormous moral authority. It can be used to
call for a freeze on the dispersal of bailout funds -- not after the
inauguration, but right away. All deals should be renegotiated
immediately, this time with the public getting the guarantees.
It is risky, of course, to interrupt the bailout. The market won't
like it. Nothing could be riskier, however, than allowing the Bush
gang their parting gift to big business -- the gift that will keep on
taking.
Naomi Klein's latest book is The Shock Doctrine: The Rise of Disaster
Capitalism.
By Naomi Klein, The Nation. Posted October 31, 2008.
The bailout has been designed to keep stealing from the Treasury for
years to come.
In the final days of the election, many Republicans seem to have given
up the fight for power. But that doesn't mean they are relaxing. If
you want to see real Republican elbow grease, check out the energy
going into chucking great chunks of the $700 billion bailout out the
door. At a recent Senate Banking Committee hearing, Republican Senator
Bob Corker was fixated on this task, and with a clear deadline in
mind: inauguration. "How much of it do you think may be actually spent
by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old
former banker in charge of the bailout.
When European colonialists realized that they had no choice but to
hand over power to the indigenous citizens, they would often turn
their attention to stripping the local treasury of its gold and
grabbing valuable livestock. If they were really nasty, like the
Portuguese in Mozambique in the mid-1970s, they poured concrete down
the elevator shafts.
The Bush gang prefers bureaucratic instruments: "distressed asset"
auctions and the "equity purchase program." But make no mistake: the
goal is the same as it was for the defeated Portuguese -- a final
frantic looting of the public wealth before they hand over the keys to
the safe.
How else to make sense of the bizarre decisions that have governed the
allocation of the bailout money? When the Bush administration
announced it would be injecting $250 billion into America's banks in
exchange for equity, the plan was widely referred to as "partial
nationalization" -- a radical measure required to get the banks
lending again. In fact, there has been no nationalization, partial or
otherwise. Taxpayers have gained no meaningful control, which is why
the banks can spend their windfall as they wish (on bonuses, mergers,
savings...) and the government is reduced to pleading that they use a
portion of it for loans.
What, then, is the real purpose of the bailout? I fear it is something
much more ambitious than a one-off gift to big business -- that this
bailout has been designed to keep pillaging the Treasury for years to
come. Remember, the main concern among big market players,
particularly banks, is not the lack of credit but their battered share
prices. Investors have lost confidence in the banks' honesty, and with
good reason. This is where Treasury's equity pays off big time.
By purchasing stakes in these institutions, Treasury is sending a
signal to the market that they are a safe bet. Why safe? Because the
government won't be able to afford to let them fail. If these
companies get themselves into trouble, investors can assume that the
government will keep finding more cash, since allowing them to go down
would mean losing its initial equity investments (just look at AIG).
That tethering of the public interest to private companies is the real
purpose of the bailout plan: Treasury Secretary Henry Paulson is
handing all the companies that are admitted to the program -- a number
potentially in the thousands -- an implicit Treasury Department
guarantee. To skittish investors looking for safe places to park their
money, these equity deals will be even more comforting than a Triple-A
rating from Moody's.
Insurance like that is priceless. But for the banks, the best part is
that the government is paying them -- in some cases billions of
dollars -- to accept its seal of approval. For taxpayers, on the other
hand, this entire plan is extremely risky, and may well cost
significantly more than Paulson's original idea of buying up $700
billion in toxic debts. Now taxpayers aren't just on the hook for the
debts but, arguably, for the fate of every corporation that sells them
equity.
Interestingly, Fannie Mae and Freddie Mac both enjoyed this kind of
unspoken guarantee. For decades the market understood that, since
these private players were enmeshed with the government, Uncle Sam
would always save the day. It was the worst of all worlds. Not only
were profits privatized while risks were socialized but the implicit
government backing created powerful incentives for reckless
investments.
Now, with the new equity purchase program, Paulson has taken the
discredited Fannie and Freddie model and applied it to a huge swath of
the private banking industry. And once again, there is no reason to
shy away from risky bets -- especially since Treasury has not required
the banks to give up high-risk financial instruments in exchange for
taxpayer dollars.
To further boost confidence, the federal government has also unveiled
unlimited public guarantees for many bank deposit accounts. Oh, and as
if this wasn't enough, Treasury has been encouraging the banks to
merge with one another, ensuring that the only institutions left
standing will be "too big to fail." In three different ways, the
market is being told loud and clear that Washington will not allow the
country's financial institutions to bear the consequences of their
behavior. This may well be Bush's most creative innovation: no-risk
capitalism.
There is a glimmer of hope. In answer to Senator Corker's question,
Treasury is indeed having trouble dispersing the bailout funds. It has
requested about $350 billion of the $700 billion, but most of this
hasn't yet made it out the door. Meanwhile, every day it becomes
clearer that the bailout was sold on false pretenses. It was never
about getting loans flowing. It was always about turning the state
into a giant insurance agency for Wall Street -- a safety net for the
people who need it least, subsidized by the people who need it most.
This grotesque duplicity is an opportunity. Whoever wins the election
on November 4 will have enormous moral authority. It can be used to
call for a freeze on the dispersal of bailout funds -- not after the
inauguration, but right away. All deals should be renegotiated
immediately, this time with the public getting the guarantees.
It is risky, of course, to interrupt the bailout. The market won't
like it. Nothing could be riskier, however, than allowing the Bush
gang their parting gift to big business -- the gift that will keep on
taking.
Naomi Klein's latest book is The Shock Doctrine: The Rise of Disaster
Capitalism.