Sep 23 2008
Wall Street Bailout and Externality
Not that I don’t have any thing good to do. But I have to say I am furious over the bailout plan. The more I heard about it, the less I like it. The bottom line? I don’t think Wall Street is contrite enough–they haven’t told us exactly what went wrong, why it went so wrong or how to right the wrong. How do I know $700 billion is enough?!
Anyway, here is some midnight ramble I sent to Congressional politicians from WA:
I am writing you to voice my strong OPPOSITION to the Wall Street Bailout Plan of 2008.
The plan, as it stands today, amounts to an extortion, like a polluter asking for Federal funds to clean up by saying it doesn’t have the money to do it itself. It might makes sense financially but fails to address the issue of public wellfare and fairness. After all, at $700 Billion, it is NOT about money any more. I urge you and your fellow Congressional colleagues to immediately reject the current version of the the plan.
First, the current crisis is the result of a loose monetary policy in combination with a corrupt regulatory ecosystem. The immediate consequence is the formation of a “financial-political complex” that usurped the monetary policy setting power of the Federal government.
Secondly, because the plan was drafted by Wall Street insiders, it may pay lip service to political consideration. Yet the entire process has been extremely undemocratic and un-American. I refuse to accept the notion that the financial industry is so complicated that only experts have the exclusive right on how to preserve public wealth.
Thirdly, Congress must act quickly and decisively to send a clear message to the entire industry of what lacking in the proposal, and to reassure investors of its political leadership.
I like to elaborate further on the above three points:
1. The Wall Street extortion. By playing up the complexity of financial dealings and by addictively committing large sum of public wealth into risky investment schemes, the Wall Street gang has been acting like a polluter who pours huge amount of posionous material into air and river. He reasons–correctly but shamelessly–that if the problem is bad enough and the scale is large enough, they can reap the benefit on the upside but force the tax payers to cushion the down side.On Wall Street, a clique of large firms acted just like polluters: they sliced up the bad loans and sprayed them onto every other securities so that no one can escape the wrath of a meltdown. They lobbied to have their leverage level raised from 30-1 to 40-1 so that they could generate credits regardless of Federal Reserve’s monetary policy. The corrupt relationship between the money man and politicians is also amply reflected in the severity of this crisis. The examples are: Fannie and Freddie’s account scandals were not properly addressed; An industry lobbiest (Cox) became the head of SEC; Populist politicians openly pressured the Fed to further loose credits so they (the politicians) could garner a few more votes from some despicable parasites.
2. The plan is undemocratic. In terms of dollar amounts, $700 million is administrative, $7 billion is budgetary but $700 billion is political. It amounts to $2300 for every man, woman, child, senior of this country! Yet what do we, as regular tax payers, get in return? A promised financial order that was there in the very beginning and only got lost thanks to the very people we are told to bailout.
Where is the social justice? Where is the political accountability? Remember, $700 billion is political–at this point, it is NOT about money any more! If we are asked to pay $2300, we should be given a chance to recount whether we had ever benefited that much from the boom. Otherwise, where is the justification of that $2300–is it a tax? An appropriation based on Emminent Domain?
3. The urgency. People have been asking how to act rationally in a time of extreme urgency. In this case, the best action should be a decisive and clear worded Congressional rejection of the Bailout, telling Wall Street, “you are not contrive enough; you have not cede enough.”
I like Senator Dodd’s proposal which requires a public equity stake in every financial institution benefited from public funds. In addition, I suggest Congress collect a one-time rememdy taxes on people who have paid capital gain tax in the last five years to pay for the Bailout.