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Sep 24 2008

Why the Wall Street bail out plan is bad-2: Manufactured crisis?

I have been getting increasingly suspicious that this so-called financial crisis may be a bogus one to enrich this administration’s base of Wall Street cronies before Bush leaves office. While I am not an economist and do not have the inside knowledge that Henry Paulson (Treasury Secretary) and Ben Bernanke (head of the Federal Reserve) have, there is something about this mad rush to pass major legislation that strikes me as very suspicious. It reminds me too much of the way the administration flat-out lied about the danger that Iraq posed in order to get Congressional authorization for the invasion.

People like Paulson and Bernanke lied when they said they had the situation under control earlier when they bailed out Bear Stearns, Fannie Mae, Freddie Mac, and AIG. How do we know that they are not lying again now in order to push a covert agenda? While I accept that the financial sector is in trouble, what I want to know is what evidence has been produced that we need to act immediately. The stock market might go down if no immediate action is taken but that is not sufficient reason because they are betting on a bailout and their potential disappointment is not a reason for throwing more money into their trough.

When one of the senators at yesterday’s hearings asked Paulson why he needed $700 billion all at once and why he could not initially accept a ‘smaller’ amount like $150 billion now and the rest staggered over time, he replied that the markets needed the larger amount to show ‘confidence’. What kind of answer is that? Why should we care if the market has ‘confidence’? What he really means is that he wants stock prices to go up by giving away taxpayer money. We need to go back to basics where stock prices reflect the real value of companies.

How do we know there is really a crisis except for the fact that we are being told so repeatedly in screaming headlines? What evidence do we have that the credit markets are really freezing up? Are industries not functioning because they can’t get credit? Are ordinary people not being able to buy a car because they cannot get a car loan? Paulson and Bernanke keep saying that if they don’t get all the money right now, this minute with absolutely no conditions, there will be a financial Armageddon and ordinary people will suffer. But the evidence produced so far is that only some banks and Wall Street financial firms will suffer.

I am not the only one who is deeply skeptical. Pulitzer Prize winning reporter on tax policy David Cay Johnson (author of the book Perfectly Legal that described how tax policies have been systematically used to siphon money away from the poor and middle class to the rich) sounds similar cautions about being pressured by a phony crisis:

In covering the proposed $700 billion bailout of Wall Street don’t repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don’t assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don’t assume there is a case just because officials say there is.

The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.

The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)

Ask this question — are the credit markets really about to seize up?

If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?

Financial reporter and New York Times columnist Gretchen Morgenson in an interview on Fresh Air tells host Terry Gross that she too does not trust these people to tell the truth now given that they have lied to us before. In a column, she argues that the fix is in to benefit Wall Street, because we, the people, have no lobbyists working on our behalf. In theory our congresspeople should be our lobbyists but given the corrupt, money-driven political system we have, even the suggestion that Congress will look out for us is laughable.

Morgenson provided some information that was new to me. She said that AIG had written $441 billion in credit insurance on mortgage-related securities that had gone sour, three –quarters of it to European banks. Furthermore, the total value of the credit default swap market (the quasi-insurance that propped up the value of the subprime mortgages) is $62 trillion. And all this was unregulated. And now we are supposed to trust Paulson, Benanke, Robert Rubin and all the other people in suits who created this unregulated monster to take us out of this mess.

When reporters for mainstream media like Morgenson say flat out that they suspect the government is lying to the people in order to reward the financial giants and their lobbyists who pour vast amounts of money into the system, it indicates that a sea change is occurring.

Chris Bowers manages to flesh out my vague fears into some very pertinent and concrete questions.

The more I think about this deal, the more it starts to look like a fraud on the American taxpayer. It is time to put the brakes on the Paulson-Bernanke-Bush juggernaut and start looking very, very carefully at how to take the gamblers out of the financial markets.

What we should watch out for is when Paulson and Bernanke meet with congressional leaders in a secret session and then they all come out and say that due to facts they cannot reveal to us, they have to do what Paulson wants (with some window dressing added) to avoid a terrible outcome. That is exactly what happened with the Iraq war and is a sure sign that the fix is in and that the reasons for taking the action will not stand scrutiny.

We should not accept this under any circumstances and should demand total transparency. This whole mess was caused by opaque trillion dollar financial transactions hidden from the world. It is not going to be solved by more secrecy.

POST SCRIPT: Silver lining?

The only silver lining to be found in this mess is that it may make it less likely that Bush will launch an attack on Iran before he leaves office. I had been fearful that the neoconservative cabal that have such influence over the Bush-Cheney regime might persuade them that carrying out such an insane plan was a good idea. Given the preoccupation with the financial crisis and its cost, such an action now seems unlikely.

Meanwhile, you can listen to (and read the transcript of) the interview NPR had with Iranian President Ahmadinejad. He repeatedly challenged the bland assumption that the US spoke for the entire world, that the things that bothered the US also bothered the world. His questioning of the assumptions so rattled the interviewer (US journalists rarely examine the assumptions of the government-corporate elite in the US that frames the discussions) that the latter started an idiotic line of questioning as to whether the Iranian leader watched western TV and whether he listened to the Beatles and Led Zeppelin.

The interviewer seemed to assume that Ahmedinejad is some kind of ignorant isolationist. The fact that he is a university academic who is well aware of what is going on in the world and capable of matching wits with western journalists seemed to have taken the interviewer by surprise.

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