On the $700,000,000,000.00 ‘Honk for Hank’ campaign

I am sure the following is old news:

Hank Paulson, the US treasury secretary on Saturday raised the price tag on its emergency plan to revive the U.S. financial system, asking Congress for authority to spend up to $700 billion to relieve crippled financial institutions of their mortgage-based assets, a sum that would exceed the cost of the Iraq war so far.

What is NOT making the mainstream news rounds is the following plans hatched by Wall Street to benefit from the largesse:

- Blackstone Group, may be interested in pursuing an asset-management assignment from the government.
- Pimco, which manages about $830 billion in assets, would like to be an asset manager for the government.
- BlackRock, a big New York asset management firm, was also involved in negotiations with the government
- Bank of New York Mellon and JPMorgan Chase were also campaigning for a spot.
- While an earlier plan said that only US headquartered firms could sell assets to the government under the program, a later version said sellers could include any financial institution (foreign banks).

So, lets get this right - first these firms use high risk financial instruments to bleed people out of their homes, make their money while the bubble is still strong, then, as the bubble pops, they plan to get the government to take over these risky holdings for pennies on the dollar and as the government guarantees these toxic instruments other Wall Street firms come up and catwalk their way to be money and fund managers for these instruments charging the government additional monies. Reminds me of carrion birds feeding on leftover carcasses after the lions have fed themselves.

At this point, when just about everyone is clear that Wall Street firms and its leaders were overpaid, under scrutinized and overvalued, why would anyone with a sane mind give them even more - especially in the management of these assets that the taxpayer is planning on buying and on top of that - have them charge the taxpayer to manage the assets?

Is this not the time for the government to create a public agency or a corporation that is empowered to drive a hard bargain and acquire these toxic assets for the lowest possible price to protect taxpayers against potential future losses, manage these assets until the taxpayer sees a return on the $700,000,000,000.00 investment and then ultimately sell these assets when they become profitable on the open market thus giving back some of the valuable taxpayer money back where it belongs : TO THE TAXPAYER!? Why should the people who are financing this largesse be NOT allowed to have a share of this ownership?

Any plan is suspect when the leaders of the party who propose the plan itself may not have anything positive to say about it. I am yet to read a single piece of economic analysis that talks about the benefits of this $700,000,000,000.00 socialist rescue effort other than the fact that it will bail out big Wall Street firms (oh, and add to that foreign banks too - after intense lobbying this weekend, they managed to get themselves on the gravy train).

Even William Kristol, a regular commentator on the Fox News Channel and staunch conservative who is normally a champion right wing intellectual mouthpiece cannot muster a single word in support of this plan: He even endorses a novel idea in the realm of executive compensation structures:

It would enable the Treasury, without Congressionally approved guidelines as to pricing or procedure, to purchase hundreds of billions of dollars of financial assets, and hire private firms to manage and sell them, presumably at their discretion There are no provisions for — or even promises of — disclosure, accountability or transparency. Any institution selling securities under this legislation to the Treasury Department shall not be allowed to compensate any officer or employee with a higher salary next year than that paid the president of the United States. - This would punish overpaid Wall Streeters and, more important, limit participation in the bailout to institutions really in trouble.

Michelle Malkin, another right wing conservative blogger had the following to say:

And this is a Republican White House presiding over the Mother of All Bailouts. Every step along the way since stimuluspalooza began last summer, we’ve heard that every bailout step was just a one-off. Each step was supposed to calm the markets. Each new government intervention and allocation of taxpayer dollars was supposed to achieve “stability.” Each new package of goodies rewarding irresponsible behavior and bad financial decisions was supposed to prevent new ones. None did. And now, here we are. This is your Bush legacy — not Pelosi’s, not Reid’s, not Obama’s: A ginormous bailout of every last, failing, panicked financial institution’s illiquid assets that may reach into the trillions — TRILLIONS – when all is said and done.

Paul Krugman, a Princeton economics professor calls it 'cash for trash'. He is right.

If the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place. That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets.

It is especially frightening when Mr. Paulson is demanding what amounts to absolute unfettered authority over the overseeing, administration and the means to manage this $700,000,000,000.00 payout: He demands immunity from review “by any court of law or any administrative agency”. When public officers ask for enormous powers of this kind and ask for blanket protection from any screw-up – one should instinctively be cautious.

This was the same man who said the following with respect to the sub-prime mortgage crisis a couple of years back: “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained”

Nobody is clamoring for killing the bailout – it will fry the financial world at this late juncture, all one asks for is accountability to the people, ownership by the people and regulation for the people.

Aaron Johnson, 'Star Crossed', Acrylic polymer and pigment on polyester flag, 93 x 128 inches. Photo from a recent visit to Aaron Johnson's show at the Stefan Stux Gallery (runs from 4 Sept - 18 Oct, 08). Reverse-painted acrylic polymer peel paintings on polyester American flags.