Paulson Will Not Bully Congress into a $700 Billion Carte Blanche Bailout

("This is Captain Paulson to the Me First Golden Parachuters. Bad news, Boys and Girls, the rabble on the ground are mad with shooting fever. You had better duck and cover your ass!")

Congress Will Not Give Paulson's Pals a $700 Billion Carte Blanche Bailout

With many Congress Persons seeking re-election, and with elections looming in 6 weeks, this bailout plan will NOT pass without major quid pro quos from the FIRE sector.

No Congress Person wants to go home, try to get re-elected in this climate, without having something to point to:

"I asked for clawback provisions for CEO pay and bonuses."

"I asked that all mortgages be reduced by 300 basis points"

"I asked that all companies seeking loans must give up some its hard core assets to taxpayers."

"I asked for stricter regulations to be advanced so that this will never happen again."

"I asked that . . ." and you've got the picture.

Paulson really misfired by trying to panic our leaders into making a swift crisis based decision which would have been detrimental for US middle class taxpayers and beneficial to his white collar friends on Wall Street.

This country is in no mood for continuing on with politics as usual. By using fear as his emotional button of choice, Paulson basically gave a "put" to share sellers in the FIRE sector this past Friday. And now Congress is taking away the Paulson Put.

Paulson's credibility gap

A few weeks ago, Paulson was saying this thing was contained. Then last Thursday, he tells a closed door hearing of Congressmen that we were moments away from an entire collapse of our banking system.

Quoting from the NY Times link in red above:

“When you listened to him describe it you gulped," said Senator Charles
E. Schumer, Democrat of New York.

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

“What you heard last evening,” he added, “is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly.”

Paulson's use of crisis based tactics backfires

Paulson has little credibility remaining. He's really boxed the banking system into a corner by giving Congress all the ammunition it needs to bully a bailout deal where taxpayers might come out ahead.

Congress, with the support of Citizens who are making their voices heard, is not going to let Paulson have the keys to the Treasury without oversight and taxpayers receiving some kind of equity from these companies wanting free money.

In an excellent article this morning in the NY Times "Stopping a Financial Crisis, the Swedish Way" we learned how those Socialist Swedes have benefitted and actually may have profited (or will profit) from a similar financial crisis in the early 90s.

The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s finance minister at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

We have a chance, both Republicans and Democrats, to stop the abuse on Wall Street and better this country.

I'd love to see a "clawback" provision enacted in which any company taking taxpayer bailout money will then have to submit detailed looks at their cooked books. If forensic accountants in the government's employ (at the new lending arm funded by taxpayers) see past crimes where CEOs, CFOs, and other officers took home millions in bonuses or backdated options, then the government can go to the sociopathic miscreants and demand the money be returned to shareholders.

Indeed, I am not alone in this wish. Everywhere I read on Internet message boards how middle class Americans are writing their Congressmen they do not want Henry Paulson to have a blank check to do as he pleases when rescuing his wealthy buddies in Wall Street executive suites.

And you can tell Congress is not ignoring the anger of "We the People" either.

People are clamoring for Executive compensation limits in return for bailouts.

As a recent Politico.com story notes:

As markets reopen Monday, the issue is a surprising flash point between Treasury Secretary Henry Paulson and House Democrats, who have drafted a bill giving Paulson much of what he wants but requiring that Treasury also demand “appropriate standards for executive compensation.”

Treasury argues that such requirements would make it harder to persuade companies to sell their troubled assets to the government. But Democrats, who otherwise admire Paulson, say that the former Goldman Sachs chairman is blind to the politics of the situation and the huge divide between the average taxpayer and the financial world now seeking relief from bad debts that have clogged the credit system — and that threaten the entire economy.

A senior aide to John McCain, the Republican presidential nominee, told Politico on Sunday that the Arizona senator also favored compensation limits as part of the package, as does the Democratic nominee, Barack Obama, according to a campaign spokesman for the Illinois senator.

Spread the pain, don't allow just the wealthy to gain

I'd love to be the process server who knocks on some sociopathic CEO's door (such as Angelo Mozilo )and say, "Yo, you remember those hundreds of millions of backdated options you cashed out while you ran your company into the ground and wiped out your shareholders? Well, today, our forensic accountants of the Taxpayers Union (or whatever the entity will be called) finally finished the tabulations of the real mark to reality losses which you hid with smoke and mirrors accounting. You owe us everything you stole, Mr. Mozilo. We intend to give it to the Bank of America shareholders who took over your crap. And we expect you will be required to apologize on national TV for your slimy anti-American behavior. Here's your paperwork. See you in court."

I want to see Big Time white collar sociopaths and pyschopaths pay as much as I've seen Realtors, speculators, appraisers, mortgage brokers, and other smaller time crooks pay by going to jail. Why do Wall Street smoothies always get slaps on the wrists? Why aren't they serving time in real prisons with people who've knocked down grandmothers for pocket change, or people who've robbed you while you were not at home. Every damn day in America, thousands and tens of thousands of retirees have had their retirement funds siphoned off by scuzzbutts on Wall Street.

Wall Street criminals have not paid for their sins.

Today, Wall Street sharpies are hoping to screw us taxpayers harder and deeper.

There is a problem with what Wall Street designed to do. This time, over 90% of the country is not buying their bluff. Even McCain and Obama are against Wall Street on this one.

A $700 Billion carte blanche bailout to Wall Street ain't going to happen.

It's election time. And this crisis could not have come at a more inopportune time for the nation's biggest greedheads.

Congress persons running for re-election will not go back home next week to run on a "I gave Wall Street all they wanted - no strings attached." That would be political suicide.

Nope, Congress is hot to make some points with the middle class voters. From today's NY Times story "Bailout Plan Talks Advance in Congress" we read the following:

As heated debate began on Capitol Hill, Congress and the administration remained at odds over the demands of some lawmakers, including limits on the pay of top executives whose firms seek help, and new authority to allow bankruptcy judges to reduce mortgage payments for borrowers facing foreclosure.

Congressional leaders and Treasury officials also said they were close to an agreement over a proposal by some Democrats in which taxpayers could receive an ownership stake, in the form of warrants to buy stock, from firms seeking to sell distressed debt. Lawmakers want to require an equity stake, while the administration wants flexibility on that matter, a Treasury official said.

“I walked down LaSalle Street on Friday, a great street in Chicago lined with banks and big office buildings,” said Senator Richard J. Durbin of Illinois, the No. 2 Democrat. “A lot of people came up and said ‘hi.’ But a lot of them came up and said: ‘Are you really going to do this? $700 billion bailing out the banks? And I said: ‘I don’t know. At the end of the day, I just don’t know.’ ”

Mr. Durbin, in a speech on the Senate floor, angrily recalled that the administration had similarly requested swift approval of its plan to attack Iraq. “Just as we should have asked more questions about weapons of mass destruction six years ago before we found ourselves in this war,” Mr. Durbin said, “we need to ask questions today about where this is leading.” (Note: highlights are mine.)

Representative Henry A. Waxman, Democrat of California who leads the Oversight and Government Reform Committee, said: “The taxpayer is being asked to risk billions to protect the bonuses of investment bankers.”

The skepticism was equally palpable at the other end of the ideological spectrum.
“This is going way too fast,” said Representative Mike Pence, Republican of Indiana and a conservative leader who said constituents he met this weekend were flabbergasted at the plan. “The American people don’t want Congress to make haste with the financial recovery legislation; they want us to make sense.”

And Mr. Shelby, of the banking committee, said: “Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion. We owe the American taxpayer no less.”

Mr. Gingrich, the former House speaker, said he expected Republican lawmakers to oppose the plan in increasing numbers. “I think this is going to be a much bigger fight than he expected,” Mr. Gingrich said, referring to President Bush.

Last thoughts

I hope American taxpayers receive equity in every loan we hand out to these sharks. And I hope clawback provisions are enacted so that CEOs will begin to understand that if they are not openly transparent and accountable to their shareholders, they will suffer as shareholders have done while entire brigades of Fat Cats jumped out of burning planes with gold parachutes.

Enough is enough, America. We the People will bailout these bastards, the die is already cast. But this time, we control the game. If Wall Street sharks want to shake the dice, if they want to get in on the action, let it be with our house rules we set up.

And remember, if your Congress people are not representing We the People in this upcoming election, fire them.

Rock Trueblood

Over and out.