Friday, March 13, 2009

For a better bailout, call Tony


The Obama administration is looking for bipartisanship in all the wrong places. The Republican leadership in Congress simply wants to eviscerate any stimulus plan. The goal of the Taliban of Market Fundamentalism is to give the new president a black eye and to “starve the beast” of government.

At the grassroots around the country, however, there’s a rare opportunity in the groundswell of bipartisan fury at the financial industry and its Bush/Paulson bailout.

It’s time to play the blame game with brass knuckles, because it’s blindingly obvious that much of the leadership of this industry and their friends in government truly are at fault for the financial implosion. There’s momentum to hold those who made bad decisions accountable and to restructure the industry so that it can’t bring down our real economy again.

The ultimate goal of a public bailout of banks and investment houses should be to take the Vegas out of Wall Street. We are all suffering now because finance became a perverse casino where small numbers of very rich people used deregulated, superheated markets to multiply their winnings many fold, but now expect the public to cover their losses.

To de-Mammonize this mess, we need less Mother Teresa and more Tony Soprano.

We need some wise guys to take some regulatory two-by-fours, put a serious hurt on the gavoni of the Wall Street brugad, break up their CDS-smoking, leverage-like-there’s-no-tomorrow party, and run them off our turf.

The invisible nose has been snorting designer derivatives, and the invisible hand has been picking the public pocket to supply its habit. It’s time to make them visible and carefully dissect their failures.

For starters, taking stock of an historic catastrophe requires a truth commission, not a new idea but a good one. In the early 30s, for example, Ferdinand Pecora and the Senate Banking and Currency Committee shone a spotlight on the dealings of the "unscrupulous money changers” that the New Deal chased out of the temple.

For the Crash of 2008, the mandate of the straight-shooting Elizabeth Warren of Harvard and her
Congressional Oversight Panel investigating TARP could be expanded to go after root causes.

The financial industry is already cosa nostra, our thing. The Paulson/Bush bailout effectively nationalized it, but without taking control of the rudderless ship or getting value for the public in return. It was welfare for the rich and incompetent with no strings attached, the Reagan Revolution ideal of privatizing profits and socializing losses on steroids.

Warren’s panel found that in the 10 largest TARP transactions, “for every $100 spent by Treasury, it received assets worth, on average, only $66”. On the first $254 billion spent, total taxpayer losses were $78 billion.

A “Bad Bank” would further nationalize the financial industry, but only the toxic stuff that's about to go critical. Bad-a-bank, bad-a-boom.

You got a problem with nationalization? Conservatives may get in a lather about the word, but it's funny how often they're the ones who end up tapping toesies with the commie menace in the next toilet stall.

Who was it who temporarily nationalized the banks in Sweden in the early 90s? A conservative government. And who was that who set up the Resolution Trust Corporation in 1989 to nationalize the failing thrifts? Shrub's daddy. And whose FDIC already nationalized IndyMac and other small banks last year? Who but the right would overdosing financial markets prefer to call on to talk them down and dispose of the evidence?

Here’s a conservative idea: we expect our government to invest our money to yield the best return with the lowest risk and the greatest public benefits. When you hire a broker to work for you, you expect this. When a company hires a CFO, it expects this. When the government takes a stake in a failing bank, we expect this.

We don’t want strings attached to public money: we want steel cables. Or as Tony might put it: you work for us, you deliver the vig, or we’ll have to take a little walk.

The careers of those who screw up get a one-way voyage on a cabin cruiser off the Jersey shore. Don’t just cap executive salaries: kneecap the contracts of the top couple of tiers of executives and let them reapply for their positions.

Ice the shareholders and bondholders: they lose their stakes, or at best get no more dividends until the public recoups its investment. Welcome to capitalism.

Avert future bailouts by carving up the zombie mega-banks and financial firms into smaller units that are not “too big to fail”. Rebuild and modernize the Glass-Steagall firewall between commercial and investment banking. Deconsolidation would create the side benefits of more jobs at the lower end and reduced ability of smaller firms to throw their weight around politically.

Recreate the financial industry as a reliable source of credit for real needs, not a criminal conspiracy ripe for a RICO prosecution. Turn it into a boring, safe place to work where you can make a good, steady living, but not a killing.

Whack Gordon Gekko. Make George Bailey from “It’s a Wonderful Life” a capo.

While we’re at it, how about fixing credit-ratings firms like Standard & Poor’s and Moody’s so they can never again take money from the businesses they’re supposed to be rating? Talk about a sweet racket.

As long as we're already in the business, think big: try retooling some of the banking capability we’ve been forced to buy into a national infrastructure bank that issues public works bonds, an idea from the Brits. Waste disposal can be a very creative business, as Mr. Soprano has ably demonstrated.

For consiglieri, tap some of the bookies who got the odds right on this crisis, people like Dean Baker of the Center for Economic and Policy Research, Robert Shiller of Yale and Nobel laureates Paul Krugman of Princeton and Joseph Stiglitz of Columbia.

Save Mother Teresa for the people in lower-level jobs in the banks and any other firms the public bails out. Use a good piece of the skim to save their jobs or help them find new ones.

Beyond Mother T, call in the spirit of Mother Jones, the tough old mineworkers’ leader, for the homeowners and renters who have been whipsawed by deceptive lending and deflation of the housing bubble. Keeping as many as possible in their homes would have the side benefit of helping to stabilize some of the mortgages and mortgage-backed securities that continue to stoke the crisis.

It’s not about charity, it’s about solidarity: a public-spirited bailout has to recognize that we’re all in this together and work from the bottom up. But – no disrespect – a little muscle wouldn’t hurt either.



Full disclosure: I grew up in New Jersey as a member of a dis-organized non-crime family.

1 comment:

  1. Tanks goomba,
    Capish. Yooz got deez guyz catalogued, demz really da battonas!

    Great idea to hire the wise guys! But I think Wall Street has already done that and that’s why we don't seem to have any collective cojones.

    ReplyDelete