Wall Street's recent pains have sparked a response in the White House that has been unprecedented. The threat raised by bad investments and lending practices have compelled the White house-in just a few days-to draft a plan that would give these companies a trillion-dollar, taxpayer-funded rescue plan. Where's that rescue plan for the millions of people who will be inundated with water from the melting of Greenland? What about the generations to come who will face species loss, unstable weather, and a climate pattern unlike humanity has ever seen before?
Al Gore and others say that one reason why humans haven't reacted to the threat of climate change with the alarm it deserves is that climate change doesn't have "fangs and claws." We have evolved by reacting to immediate dangers rather than far-off or unseen ones. So why the immediate panic to the financial crisis on Wall Street, which is similarly unseen to the majority of Americans? Because those who will be primarily impacted by climate change are the ones who can't get out when a hurricane approaches, who have already been excluded from our pollution-based economy and the ones who will benefit from the green economy-namely the poor. The financial crisis is a product of the economy as it is; the green revolution is about what the economy should be.
Naomi Klein warns, "If this [bailout] passes, forget about any money for environmental protection, to counter global warming, for education, for national healthcare, to rebuild our decaying infrastructure, for alternative energy...It's socialism for the rich and dog-eat-dog capitalism for the rest of us." While we should react to the woes of Wall Street with concern, the costs of not reacting to climate change are much higher and it makes no sense to sacrifice the benefits of the green revolution for the short-term pain on Wall Street.
"Is the financial crisis more dire than the climate crisis?" asks Joe Romm on Climate Progress.
What happens if we fail to act in time to avert the climate catastrophe?
G求 We cross carbon-cycle tipping points, such as the loss of the tundra, beyond which there is "no redemption."
G求 We head toward CO2 concentrations this century that are triple or quadruple preindustrial levels.
G求 We should expect 0.8 to 2.0 meters of sea level rise this century, inundating the homes of 100 million people.
G求 We face desertification of one third the planet and loss of the glaciers that provide water to a billion people.
G求 We face loss of more than two thirds of the species on the planet, and a hot, acidic, and largely lifeless ocean
G求 We face humanity's self-destruction - 6- total planetary warming.
But at home, the price of missing out of the green energy revolution could be in the millions. The ACEEE just released a report that said that investments in energy efficiency would reduce emissions by 20% in 20 years and make Dominion's Wise County Coal Plant obsolete.
It's not that the financial crisis on Wall Street isn't an important issue, but when the rest of us have been struggling in this pollution based economy, when more and more Katrina's displace and kill the poorest of us, when the climate system that we have been experiencing for all of human history is changing, we need to stay focused on creating an economy that works.
Hundreds of people will be gathering this Saturday all over the region to demand a green economy. In Anacostia DC, leaders including Mary Cheh and Mayor Adrian Fenty are coming together to show community members that weatherizing and greening homes and businesses are viable industries, and to give them opportunities to retrain and meet the demands of the new era. In PG County, a low-income family is going green and helping their community realize the benefits of simple changes around their homes.
Green groups have come out in opposition to the bailout (Brent Blackwelder of Friends of the Earth, Carl Pope of Sierra Club), and seek to put pressure on congress to invest in the green economy. It's time to come together and demand real solutions for the failing economy. Find an event in your area and join us.
But it probably also means there won't be a lot of money or political will to raise people's energy bills in order to switch us over to a green economy.
Besides, universal healthcare takes priority. Senator Kennedy is going to see to that. And all that money for healthcare is going to mean that much less for other discretionary items.
If the global credit market is frozen, then where exactly is the US even going to get the $700 billion to bail these bastards out?
The main problem here seems to me to still be the gigantic asset bubble that is US residential real estate. Prices may still need to correct another 5 or 10 or even 25 percent before the bubble is burst. That being the case, and with the 'deregulate and let the free market reign' crowd having gotten their way in the late '90s with the repeal of Glass-Steagall, the fierce resistance to regulation of derivatives, and then the punitive bankruptcy law changes in 2005, I say that the best thing is to do nothing and then let the financial institutions use their current options -- bankruptcy. Until the real estate market hits its nadir and all these CDS can be unwound and the MBS can be properly valued, I see know point in throwing good money after bad. The firms that enabled all this risky behavior should be wiped out. The FDIC can be further capitalized to protect regular Americans' savings (even upping the limit in emergency fashion to prevent a run on the commercial banks if need be), and the full faith and credit of the United States can be used conservatively to ensure that the middle class isn't wiped out by this mess.
But the oligarchs and true-believers have this one coming. They should not be rewarded for their belief in this ponzi scheme. If banks think they can stay solvent and survive, then let them issue new equity to do so. Otherwise, just as we have working airlines in various systems of bankruptcy, let the corporate bankruptcy laws and courts and judges deal with this mess, and then we'll take a breath in 6 months and see what some structural fixes are.
To your point, we need some package. I am not married to the Paulson plan. But I still think it is a good idea (maybe not with the restrictions on oversight part). We could do other things. Some have suggested expanding FDIC's role, going to some model where we let institutions fail and then they come under the control of an agency like FDIC to dispose of them orderly. But however you slice it, taxpayers are going to be left holding the bag in any plan.
And the wealthy are not going to be hurt most by inaction. The regular American will. The top executives at all of these financial institutions will make out okay regardless of what happens. The rank and file who work for all of these companies may not. Waves of regular salaried employees will be out on the street. And no employer will be hiring if they are worried about financing issues. Main street will be hurt too. This is all that CFOs and treasurers across corporate America are talking about. Most companies don't sit on a pile of cash like Exxon and Microsoft, which can basically finance their own operations. We can let things fail without any government action, but that will be very, very hard on the average American.
Besides I thought we were all Keynesian economics folks? You know government can help, right?
As to the value of Asset Backed Securities, that can be determined with a little forensic accounting. I say a little. =) And you will need those same folks you malign to help you in that process, as they did with the S&L mess. These don't all lack value. They are just illiquid at the moment. Think of it like being unable to sell your home, if you can find no buyers, does that mean your house is worthless? You just need someone to pick through this and separate the good from the bad. The remaining bad, you just need someone with the wherewithal to hold on to it until the underlying asset can be sold for something worthwhile. Or you could sell those assets to local governments to manage as Fairfax has proposed (and as Baltimore does). As far as the Credit Default Swaps go, the government can take the premium payments back from all of the issuers and since it is holding on to the MBSs too, the credit default swap is null (i.e., the government would be it's own counterparty). Grab your green visors and slide rules, Accountants away!!!
As to bankruptcy as an option, that's bad news. I recall when all of Enron's creditors pulled out and they were in bankruptcy overnight. And the next day people were pouring out of their downtown Houston offices with boxes. This would be that scene many times over. It's not like airline bankruptcy because their creditors don't go anywhere. They just restructure their terms, change management, and bully the unions into new contracts. These are the creditors. When Bear Sterns failed, had the government not have engineered a rescue, there would have been that same Enron scene. Bear Sterns could find no one to lend to them, no operating funds means no payroll. It means pack your stuff up and we will try to get you a check for your last weeks as a part of our bankruptcy proceedings. Oh and the Employee Retirement Income and Security Act (ERISA) does not protect your 401k like a defined benefits plan. If your employer made an employee stock ownership plan (ESOP) a part of the 401k, and employees bought into it heavily because it was such a deal. Oh well, they lose all that money as part of the deal, sucks to be them (I hope you weren't planning on retiring anytime soon)!
Many of these folks are not in a Chapter 11 (let's screw our employees for fun) bankruptcy situation. They are in a Chapter 7 (fire sale, every man for himself) type of bankruptcy situation. This isn't Boston Market, whoops I grew too fast. This is more like Enron, major segments of my balance sheet are worthless situation. In fact a lot like Enron since all of these institutions need to use mark-to-market treatment to report their financials. It's not like airlines that still have planes and can still fly routes. Their assets are pretty solid. These financial institutions have moved heavily into trading. And trading includes counterparty credit screens. So, if you fear a counterparty has a problem with bad debt from mortgages, then you may stop trading other instruments with them. And the liquidity crisis just keeps ballooning. People stop thinking rationally and then financial assets as a whole become worthless. And even though you may have good assets on the books that still produce constant, good revenue (like Enron's pipeline business), it's too late. No one is willing to allow you to survive and restructure.
I won't (can't!) rebut them all.
But this is where I'm coming from. I am not against government intervention if circumstances warrant it. The problem is, I don't trust any of the actors in this administration nor any of the elites on Wall Street that brought this upon themselves (and, thus, us). Paulson should be shown no -- zero, none, nada -- deference; he should be made to provide verifiable evidence for every statement he makes. He helped create this mess when he was the CEO of Goldman Sachs (and for all we know he's just bailing these companies out to head back to work there on the Street in 6 months when this godawful administration is over), and he has been out there for at least half a year talking about how the financial institutions of this country are fine, while other economists and bloggers have been sounding the alarm about this situation for going on two years now. So, in my mind, his loyalties are deeply questionable.
And this is how this administration always operates -- everything is fine, no problem, no problem, BAM! HOLY SHIT IF WE DON'T PASS LEGISLATION RIGHT NOW BEFORE CONGRESS LEAVES SESSION WE'RE ALL GOING TO DIE!!!! It happened before the election in 2002 with the AUMF. It happened in 2007 with the Protect America Act. It's happening now. I'm sorry, we should not be writing checks for nearly our entire freaking GDP in a week on the say-so of these incompetents and liars.
So, to the extent that action may be necessary to ensure the proper functioning of our capital markets, it needs to wait at least until mid-November when there is a resolution as to who will be leading this republic out of banana republicanism. Until then, I guess we'll have to settle for ad hoc bailouts as circumstances warrant, not that I'm happy about that either.
My other big beef is, in this age where accountability has been destroyed, I am absolutely outraged at the idea that we the taxpayers should be responsible for people that have been gambling like drunks in a casino. If things are really as desperate as everyone is claiming, then they (these insolvent/illiquid financial firms) had best be getting on their knees and asking for forgiveness and promising a sharing of the future wealth in exchange for taxpayer largesse and a complete reinvigoration of the oversight and regulatory machinery. Instead, they send their dauphin to insult us and demand we write them a $700 billion check. Moral hazard must be reduced as much as humanly possible here -- and that goes for real estate speculators as well. I pay my mortgage on time, even though I may have overpaid for my home ... do I get a handout as well?
Now, this all gets complicated as you rightfully note by the prospect of firms evaporating and jobs disappearing and families being thrown out of homes. To the extent a grand bargain becomes necessary to spare a large amount of pain ... by restructuring mortgages on defaults/foreclosures on primary residences for people that were fooled into bad/exploitative loans, buying off some of this bad paper in exchange for a governmental equity stake, and/or forcing a breakup/settlement on some of these insolvent firms (jettisoning the junk), then so be it.
But I want hearings. I want people like Nouriel Roubini that have been right on about this stuff from the start to be listened to, instead of the arrogant bastards that helped create this whole mess. I want it discussed every which way from Sunday. And I want to see the equity and bond holders of these corporations impacted before it falls to we, the people, to bail this sorry situation out. I want there to be consequences for this. And I especially want us to be damned sure that we don't fork over any taxpayer dough until/unless we are reasonably sure that it will actually help get us out of this morass, and until the people in charge of the plan can explain how the continuing bursting of the real estate bubble will impact this.
I don't wish anyone out of a job up on Wall Street, but I'd rather have that than no accountability for the elites that created the mess.
I don't dispute that the Bush Administration has a history of crying wolf. But Paulson and Bernanke were not a part of those things. So, I don't think we should consider them bad actors like Bush and Cheney. Not to say that they deserve blind faith, but they deserve respect and their opinions carry a great deal of weight. Congress can ultimately do whatever it wants, but it should solicit their feedback as a part of the solution. Ultimately, these are the folks who will be implementing the plan (or most likely will to start).
I think we can do something smaller now and wait until after the election to do something major. All that market really needs is some certainty on what will happen so that they can get over this panic attack. The only bad thing would be if Republicans and Democrats can't reach a consensus and nothing gets done. Then we are in the same situation of central banks trying to control the chaos.
As a basis, and as I have been saying, everyone knows that the game has changed. Financial market regulation will not look the same next year. But a landmark bill to change that will not pass this Congress. And we will need a leader in office who can work with leaders in Europe and Asia to construct a global financial market regulatory structure so that firms cannot circumvent rules in New York by going to London or Singapore. I think a lot of people around the world are on board with this, their public statements being indicative. It's just not something we can do this year. But it will get done.
Getting all of that done doesn't eliminate the need to do something to address the more immediate credit market issue. We can do a fix for that and then separately do all of these other things, that I am certain we will do.
I'm also very skeptical that the regulatory changes we both agree are necessary are likely to make it through the congress absent them happening at the same time as the bailout. The lobbyists will work overtime once the bailout is passed to ensure that no such regulatory schemes are ever enacted -- and the elite consensus on Capitol Hill will make it difficult to do so.
The bailout must be contingent on very strict and stringent rules, including the populist pandering of executive compensation. Money being fungible and all, if these execs of these firms want federal monies, then they can accept federal salaries. Fair is fair and all that.