Deborah Cupples: Why not build a better bailout
Published: Wednesday, October 1, 2008 at 6:01 a.m.
Last Modified: Thursday, October 2, 2008 at 12:14 a.m.
A U.S. Treasury spokesperson told Forbes Magazine (Sept. 23) that there was no math behind the Bush administration's $700 billion price tag for the proposed Wall Street bailout.
The spokesperson said: "It's not based on any particular data point.... We just wanted to choose a really large number."
That's a huge number, and a blatant admission that administration officials attempted to manipulate us taxpayers, our media, and our representatives in Congress.
Many media aren't reporting the Forbes quote, which is a dereliction of duty.
We have a right to know that government officials had no real basis for demanding so many truckloads of tax dollars.
Instead, our media merely repeated the $700 billion figure as though it had been divinely carved in stone.
The administration's first plan was to let Treasury Secretary Henry Paulson (former CEO of Wall Street firm Goldman Sachs) spend $700 billion buying "toxic assets" (e.g., mortgages collateralized by houses worth less than the loans) from companies whose executives had chosen to buy obviously iffy "assets."
The administration wanted to let Paulson dole out tax dollars without accountability (i.e., no judicial review). It even balked at restrictions on pay for executives whose firms receive tax dollars.
Some economists proposed an alternative: instead of buying toxic assets, perhaps we taxpayers should buy company stocks that aren't publicly traded and get an "equity stake" (or ownership).
Many corporations raise cash by selling equity stakes when they can't get private loans.
Our nation's corporate powers don't mind taking government money, but they hate the idea of government's permanently holding an equity stake in businesses.
One way around that: we taxpayers could agree to sell the stocks back when the companies recover.
Congressional leaders drafted a bill that changed the administration's bailout plan. Instead of appropriating $700 billion now, the bill would give Sec. Paulson $250 billion now, $100 billion later if the White House certifies the need, and another $350 billion if Congress feels generous.
The bill, however, did not give taxpayers an equity stake in the companies that receive tax dollars.
On September 29, the U.S. House voted down that bill.
Apparently, many media now support the bailout, which they've stopped calling a "bailout" and started calling a "rescue plan."
Media perceptions aside, the bill's failure seemed a good thing, because it gave Congress a chance to draft a more cautious and taxpayer-friendly bailout bill.
Why a full $250 billion up front, followed by $100 billion if the White House says so? Though it's "only" half of $700 billion, $350 billion is a ton of money: about 10% of our nation's entire annual budget.
Our nation's big drug companies (among the world's most profitable entities, even during economic slumps) don't collectively make $350 billion in annual profits.
Our national debt is now $9.9 trillion, and interest accrues daily. The interest our Treasury would earn on cash that we delay funneling to Wall Street firms could help pay down our national debt.
At a Senate Banking Committee hearing last month, Sen. Chuck Schumer asked Sec. Paulson how he came up with the $700 billion figure.
Paulson said he figured the Treasury would hand out $50 billion a month.
Sen. Schumer then asked: why shouldn't Congress give only $150 billion now and give more in three months if there is need and if the bailout is working?
To bail out or not to bail out is not the question.
We taxpayers will likely pay serious cash to prevent economic disaster. The real question is how should we execute a bailout?
I vote that political officials proceed with caution and protect us taxpayers.
Deborah Cupples is an attorney in Gainesville, who blogs at Buck Naked Politics.
Reader comments posted to this article may be published in our print edition. All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.
Comments are currently unavailable on this article