Today In The Greatest Transfer Of Wealth In World History
I go back and forth on whether this financial situation is a crisis or not. Clearly journalists aren't asking the right questions, but there are reasonable answers to those questions. Clearly the credit markets aren't reacting well and banks are wary of lending each other money, but with Warren Buffett's injection of cash into Goldman Sachs, four of the Big Five investment banks are under relative control, either bought out or propped up.
My personal view is that Wall Street is trying to create a bigger crisis by going on the equivalent of a general strike in an effort to get a sweetheart deal, and don't tell me they wouldn't do it. The market is acting extremely rational. If you were close to getting a $700 billion dollar rescue, you would make things look as badly as possible too.
I think it's become clear now that the Paulson plan is a nonstarter. There are plenty of other solutions, some good, some bad (the two-year ban on the capital gains tax is just more idiotic supply-side talk), but handing over $700 billion isn't the only plan. We could actually learn from history on this one and take a page from Sweden. Barack Obama's ideas include some intriguing elements:
It is wholly unreasonable to expect that American taxpayers would or should hand this Administration or any Administration a $700 billion blank check with absolutely no oversight or conditions when a lack of oversight in Washington and on Wall Street is exactly what got us into this mess...The plan must include protections to ensure that taxpayer dollars are not used to further reward the bad behavior of irresponsible CEOs on Wall Street. There has been talk that some CEOs may refuse to cooperate with this plan if they have to forgo multi-million-dollar salaries. I cannot imagine a position more selfish and greedy at a time of national crisis. And I would like to speak directly to those CEOs right now: Do not make that mistake...This plan cannot be a welfare program for Wall Street executives.
...after the economy recovers, we should institute a Financial Stability Fee on the entire financial services industry to repay any losses to the American people."
Of course, there's a better way to fight runaway CEO compensation, a Constitutional option - make the top marginal tax rate for those making millions back to where it was during the Eisenhower Administration. But I'll settle for hedge fund managers being taxed on their income as income. Alternatively, I could go with this:
Today's latest news is that Chris Dodd may be pushed out of negotiations, which would be really horrible (UPDATE: I'm now hearing that's not true). But Nancy Pelosi is absolutely right in saying that this must be a consensus legislation.
Pelosi (D-Calif.) has effectively sent the message that if she is going to jump off a cliff to rescue Wall Street, she wants House Minority Leader John Boehner (R-Ohio) and George W. Bush holding her hands when she leaps.
Pelosi made this scenario clear at a lengthy closed-door meeting of House Democrats on Tuesday. Many of those present said they took Pelosi’s message to mean that a “majority of the minority” needs to support the bill before she will bring it to the floor.
To get that kind of support, President Bush needs to go on television to speak directly to the public, and get on the phone to rally his fellow Republicans, said House Majority Whip James Clyburn (D-S.C.).
“If it’s a crisis,” Clyburn said in a statement, “and we all need to come together, then as leader of this nation, the president needs to take the lead and bring the country together.”
Word is that Bush is considering just that, which would kill any bill. We have to keep up the pressure.