Breaking: Paulson plan could cost $1,000,000,000,000.00
politico.com
By: Mike Allen
September 19, 2008 10:01 AM EST
Congressional leaders said after meeting Thursday evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that as much as $1 trillion could be needed to avoid an imminent meltdown of the U.S. financial system.
Paulson plans to announce his “comprehensive†plan at 10 a.m. Eastern at the Treasury building, next door to the White House.
Stock markets soared around the world in anticipation of the rescue, with British and Chinese indexes recording their biggest gains ever.
Senate Banking Committee Chairman Chris Dodd (D-Conn.) said on ABC’s “Good Morning America†said lawmakers were told last night “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications, here at home and globally.â€
“What you heard last evening is one of those rare moments — certainly rare in my experience here — was that Democrats and Republicans decided we needed to work together, quickly,†Dodd said.
The solution being proposed by the Bush administration is the most expensive bailout in the nation’s history, sharply curtailing the ability of the next president to push for tax cuts or new spending.
Congressional leaders tell Politico that to expedite the rescue, Treasury plans to seek additional authority rather than creating a new entity. The plan involves buying up hundreds of billions of dollars in bad mortgages to take them off the books of financial institutions that otherwise might fail.
[mmm... Department of Homeland Financial (in)Security?]
Sen. Richard Shelby of Alabama, the ranking Republican on the Banking Committee, told “Good Morning Americaâ€: “I figure it will be at least half a trillion. But if you look at what the Fed has already done [by rescuing insurance giant AIG], and the extension of power to Treasury to deal with Fannie Mae and Freddie Mac, I believe we're talking about a trillion dollars.â€
Some Republicans are expressing concerns about writing essentially a blank check to the Bush administration.
“They're lurching from one crisis to another,†Shelby said. “They don't seem to have a superplan to deal with this. ... We want to see the plan. This is not a done deal yet. But we know there's crisis, there's stress, in the financial markets that we haven't seen in, say, 70 years.â€
Some conservatives are balking even more bluntly.
Sen. Jim DeMint (R-S.C.), a member of the Joint Economic Committee, told the Los Angeles Times: “What is missing from it and from the recent string of bailouts is a commitment to return to a free enterprise economy. ... What we need now is not what could be nearly a trillion dollars in new taxpayer bailouts but pro-growth policies that allow our markets to correct and start growing again.â€
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SO, JUST WHAT ARE THEY GOING TO DO WITH THAT TRILLION?
SO, JUST WHAT ARE THEY GOING TO DO WITH THAT TRILLION?
What Really Happened
Here is the Cliff Notes version of the economic disaster.
1. The banks and investment houses made up a bunch of products and sank their investors' money into them.
2. The banks and investment houses couldn't convince you to buy those products.
3. The banks and investment houses got the government to FORCE you to buy those products.
Any questions?
So, all those bad assets are being moved off of their books and onto a gigantic cash sink run by the US Government and paid for by YOU. Estimates of the total bailout just for this latest plan are a trillion dollars. The prior bailouts of Fannie Mae, Freddie Mac, AIG, etc. are another half trillion. You know the saying, a trillion here and a trillion there and soon you are talking some real money!
Basically, Wall Street got into the same liquidity crisis as ordinary Americans. Ordinary Americans got a check for $600. Wall Street gets trillions. Go figure.
So, what will those banks and financial institutions do with the money magically reappearing in their accounts?
Well, they probably will go back to doing what they have been doing all along. They have no reason to rethink their policies and practices since they don't have to pay the price for their failures. Indeed, the bailouts are a disincentive to learn and evolve.
So, it's back to endless credit card offers and high-risk loans and over-leveraging, and in the middle of this New York casino the women and booze will continue to flow in copious amounts, obscuring a simple truth. As McCain admitted the other day, the entire US economy rests on the ability of US workers to earn a good living and pay all the bills (and taxes). And those same corporations whose stock is in play have been sending those high paying manufacturing jobs to other countries, aided by generous tax incentives by the US Government that now proposes to shackle you to the losses incurred by those corporations. The US economy is a pyramid scheme, and Bush's plan just spread the pyramid out along a wider foundation, but that foundation is already full of cracks. If there are no jobs, then there is nothing to tax to pay the bills. In the absence of real manufacturers to invest in, Wall Street will loan that trillion dollars out to any fly-by-night operator who promises a quick return.
The fact is that this added infusion of cash is going to put tremendous inflationary pressure on the dollar. It's not like the money that Wall Street lost vanished. It's still out there, just not where Wall Street wanted it to be. Adding trillions more in liquidity makes all those dollars actually worth less. Prices will go up. Already commodities have started up on expectations of too much cash chasing too few goods and services. This in turn will accelerate the trade imbalance, motivating foreign nations to start getting out of dollar reserves. Foreign investors may start pulling out of the US markets rather than see their investments increase in dollar value but decrease in real worth.
The fact of the matter is that Bush's plan is at best a patch, to make it look like the government is doing something positive between now and the elections. But it doesn't really change anything. The jobs are not coming back. Homes are still in foreclosure. We are mired in two pointless wars while Bush pushes for a new one in the hopes that red blood will obscure the red ink.
Meanwhile, the price tag you will pay for helping Bush pay for it all will run into the thousands for each and every one of you. And all that will be accomplished is to put the final disaster off onto someone else's administration.