home Current Affairs, Economy, North America, Politics The 700 billion bail-out: what about ordinary Americans?

The 700 billion bail-out: what about ordinary Americans?

The economic bailout of Wall Street investment banks proposed by the Bush administration is only three pages long. If you click here to read it, you’ll have done more than John McCain apparently had before proposing a “suspension” of Friday’s scheduled presidential debate.

The bail-out proposal is the anti-Patriot act in its brevity, but the rush to push it through in a climate of fear and some of the wording reveals similarities. Most frightening is the clause that reads, “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

The Secretary would be Treasury secretary Henry Paulson, nicknamed “Mr. Risk” in a BusinessWeek article in 2006 when he ascended to his Cabinet position after a stint as CEO of Goldman Sachs, one of the firms being bailed out with the $700,000,000,000 proposal.

Oh, and by the way? That’s only $700 billion at one time, not a cap.

“He’s one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in their pursuit of profits,”

Michael Mandel wrote of Paulson at the time in BusinessWeek. In other words, he’s one of the guys who created the situation from which we now need to be rescued.

Aside from the lack of oversight urged in the proposal, another similarity to the Patriot Act is the unprecedented amount of authority granted to one administration official. Former Attorney General Ashcroft had his dreams come true when the Patriot Act was squirted through Congress, and Paulson will have wide-ranging powers unheard of for a Treasury Secretary if this bill goes through largely unchanged.

Thankfully, Speaker of the House Nancy Pelosi, joined by Rep. Barney Frank (D-Mass), chairman of the House Financial Services Committee, and even some congressional Republicans are not so eager to give Paulson what he wants. Senate Banking Committee Chairman Chris Dodd referred to the bill asking the government to buy “toxic assets,” and the ranking Republican, Richard Shelby, agreed, saying that the bailout would only help Wall Street, which had created the problem with “sloppy underwriting and reckless disregard for risk.”

So what’s really going on?

Well, Noam Chomsky pointed out in a BBC interview that “The unprecedented intervention of the Fed may be justified or not in narrow terms, but it reveals, once again, the profoundly undemocratic character of state capitalist institutions, designed in large measure to socialize cost and risk and privatize profit, without a public voice.”

It is indeed funny that the first people to decry suggestions for national health care as “socialism” are willing to take government money to bail out huge investment banks. The idea is that these businesses are simply too big to fail, that our economy hinges on their success, so we must bail them out while people whose mortgages shot up are left to lose their homes.

Naomi Klein noted that this current love affair with government support won’t last, and in fact it will be used to make excuses for cutting funding for social programs later, to lessen the already astronomical debt we’re incurring now.

Klein suggests, though, that a bailout of this size belies the claim of so-called small government conservatives that the government cannot act to help ordinary citizens. According to the New York Times, universal health care for all those in the U.S. without it would cost $100 billion a year. Somehow, after authorizing $700 billion to clean up Wall Street’s mess, $100 billion for health care doesn’t seem so bad, does it?

So what is the solution? I wish I had an easy one. Democrats have suggested more oversight, more regulations (as has John McCain) and a big one: limits on CEO pay for companies receiving federal money. After all, do you want your tax dollars (approximately $2300 per person) going into the pockets of a guy who makes millions?

But the problem with regulations is glaring: they have to be enforced. Recently, This American Life, a program not exactly known for its political reporting, took aim at the Securities and Exchange Commission chair, Christopher Cox, noting that he should be “Wall Street’s Top Cop” but in Senate hearings this summer over the Fannie Mae and Freddie Mac crisis, Cox was offered any legislation he wanted, any money he needed to prevent the collapse of the companies. He said that he had all the authority and cash he needed.

That’s why the government had to take over Freddie and Fannie earlier this month.

One thing is clear: having people who don’t believe in regulation responsible for regulation isn’t helping. At all.

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Sarah Jaffe

Sarah Jaffe is former deputy editor of GlobalComment. She's interested in politics and pop culture, and has a special place in her heart for comics.

28 thoughts on “The 700 billion bail-out: what about ordinary Americans?

  1. I don’t think these CEOs should get anything. In fact, the Attorney General should be preparing charges of fraud and malfeaseance and throw their happy asses in jail for swindling the American people. Then we should abolish the Federal Reserve.

  2. Stats:
    $700 Billion is $5,500 from each US household.

    Goldman Sachs Bonuses to Average $600,000 Per Employee – December 18, 2007

    You decide…

  3. what makes everyone so stupid, dont you all know that the economy is being delibertly tanked so that the Rich can tax us until we are all broke. But we will let race decide this election. We will let the washington elite con us all. Now thats what i call sad

  4. if you want more of the same vote for Obama-more government more spending–more taxes-every yes every President has to raise taxes where do we get the revenue to pay all these incredible bills–a very wise man said once that the “love of money is the root of ALL evil”-His name was Jesus of Natzareth

  5. You keep talking about those “elites” now, rick! You know what you sound like? – “That n—– thinks he is better than you,” that’s exactly what you sound like.

    And the comment above mine doesn’t make any sense. Obama is bad, but taxes are good, but Jesus said this and that? Keep trying!

  6. Hmmmm, $700 Billion, if each tax paying American who made under $200,000 last year was able to get a cut of this $700 Billion and used it to pay it toward their credit, that would be the best way to solve the problem. The all knowing government could apply the taxpayers money to their credit cards and mortgages which would go to the banks and lending institutions thus solving the problem on bout fronts (the banks and the people).

  7. Here’s an idea.

    Instead of relying on the false assumption that the government is the only entity capable of bailing out teetering banks, and before giving the government unprecedented and likely permanent powers yet again during the Bush administration, let’s give the capitalist approach a fair shot. If private investors were to finance the bailout, the risk and potential profit would be borne by entrepreneurial volunteers, not forced from the pockets of every taxpayer in America. The difficulty is that no one investor can fix the entire problem since $700 billion is too much to invest in a something this risky. But if many investors contribute a relatively small amount, the net result would be enough cash for the bailout and a stimulated economy, which would increase the chances of the investors turning a profit. And where do those investors’ profits go? Right back into banks so they can lend it to other people, softening our current credit crunch.

    The government could certainly facilitate this unified investment by coordinating the effort. No one wants to be the first to jump in the pool because there’s a good chance no one will follow. Set up a savings account for investors to contribute to by a certain date. If by that date enough capital has not been accumulated, return the money to the investors with interest (and be glad that your taxes didn’t finance such an apparently risky investment). However, if the critical amount has been achieved, use the money to buy the banks’ bad assets. The end result is all the benefits of the original $700 billion bailout proposal, but without the unacceptable negative effects.

    —————————————-

    Elect Ron Paul, abolish the Federal Reserve – stop printing more money and devaluing our assets.

  8. the American people are not the ones who took the risks… we should not have to pay for the consequences. i truly believe that if this legislation passes, America will have made a huge mistake and democracy will have failed

  9. How dare Bush and these elitest demand that the American people pay for their bad investments!!
    Don’t try to tell me that this money is all about helping the ordinary American (who will) or already has lost their home!
    This 700 billion bail out will never reach the ordinary person.
    This bail out is an attempt by the mega How dare Bush and these elitest demand rich to recoup their monies which they lost through their own greedy practices!!
    I say IMPEACH BUSH!
    The American people can’t even afford to put a gallon of gas in their gas tanks anymore – nevermind pay increased taxes to the SOB CEO’s who collect millions in bonus’ then have the audacity to ask for help with their ‘failing’ companies.
    I AM SICK THIS!!
    And what does public taxpayer money have to do with private industry?
    HELP THE AMERICAN PEOPLE FIRST!!

  10. I agree this is a sickening mess. I am pissed at the CEO’s and would love to see some of them go to Jail.. I am also pissed and the total lack of regulatory oversight and fiscal iresposibilty of pumping trillions into the existance to fuel the economic Bubble.

    Wake up and look within. This whole mess would not be possible wihout the so called average Joe. What about the average Joe? They guy that fuled this madness by living large and irresposibley and way beyond his means? Is he a major part of the problem here? If you took a morgage on a property for 400K you are bound to honor that contract.. You said you were going to pay the debt. Why shouldn’t you keep your word and pay your bills?
    Maybe this 700 Billion should be used to move the average Joe into into a 50 year morgage on that property so he can afford to pay it off instead of being allowed to walking away from it. They do this in Canada. 50 Year morgages. You and your Kids can pay off the house and enjoy all the toys and goodies you amassed on easy credit.

    For the last 10 years I watched the whole thing happen and kept asking myself how can everybody afford all these big homes? how come everyone has nice new cars and all these cool toys and 52″ flat screen TV’s.

    I realized a long time ago that it was an illusion. They can’t afford all these excesses. They live on credit and obviously never plan on retiring.

    Did you really think you could afford all these toys and luxuries? Did you really think it would last forever?

    I have been saving for retirement for the better part of 20 years and living well within my means.

    Now all my retirement savings will be ravaged by Inflation thanks the additional 700 billion the government will bring to bear on this crisis to try and bail us all out. Including the average Joe.

    Savers are the ones who are getting screwed by this deal. The responsible citizens who lived withing their means and did not participate in this speculative bubble…..

    IMHO

  11. These big “capitalists” are full of shit. This isn’t capitalism. This is “capitalism when the big boys can make their money, cry to mommy when it doesn’t work out and stick the taxpayers with it”.

    I hate capitalism, I really do, but dammit if you are going to claim to be pro-capitalist, then you need to LIVE IT. Dudes (yes, the current crop of crybabies are pretty much dudes), you fucked up, you took the risk, now take the consequences.

    This isn’t capitalism. This is fascism.

    And Don’s comment cracked me up. What is he ON?

  12. RE: Comment #10, Tuzigooter’s remarks, first that defaulting homeowners are “walking away” from mortgage obligations, and second that 50-year mortgages could be a plausible solution to the financial crisis.

    On “walking away” from mortgages: Tuzigooter probably knows that in the U.S., when homebuyers default on their mortgages, the banks foreclose on the mortgaged property. Homeowners don’t “walk away” from mortgages simply out of neglect of an obligation. As Tuzigooter pointed out, homeowners were over-indebted to begin with, and thus they finally defaulted on their mortgages.

    When this happens on a national scale, the results are the typical outcome of the bursting of a real estate bubble. To sum up, the losses from nonperforming mortgage loans are simply passed upstream as more and more lenders default on their own borrowing, and eventually the investment banks who underwrote securitized mortgages from Fannie Mae and Freddie Mac find themselves with massive amounts of worthless securitized mortgages, and hence the financial crisis.

    Historically, in both the U.S. and elsewhere, it is not unusual, in and of itself, for the national government to bail out banks that are failing after the bursting of a real estate bubble.

    The question is how that bailout is done. The problem with the current bailout as initially proposed by the White House is the unprecedented amount ($700B) and the fact that initially there was to be no oversight and no accountability. So any credible solution begins with reregulation/oversight and holding irresponsible lenders accountable in some fashion.

    One way to hold irresponsible lenders accountable is to oversee their reporting standards. The financial crisis arose partly from the fact that lenders downstream were knowingly underreporting their losses, either through so-called “creative accounting” or through simple, flat-out deceitful reporting (or so I have read).
    So reporting standards have to be strictly enforced.

    As to 50-year mortgages: Fifty-year- term loans are incredibly risky in the eyes of investors. The only way banks could sell 50-year mortgages to investors is by substantially raising the lenders’ interest rate to individual homebuyers. Individual homebuyers could afford such increased rates probably only if the Federal government somehow subsidized interest payments or otherwise guaranteed the 50-year mortgages, and we’d risk winding up with another real estate bubble/collapse to be paid for by the taxpayers.

    RE: Comment #7, Ian’s proposal for a private bailout.

    A private bailout would be ideal, except that at this point, with America’s increasing unemployment rate and continuing collapse of asset values (like the values of foreclosed properties), even a private bailout would entail such high risk that private investors (foreign or domestic )would require some sort of U.S. Government guarantees to reduce private risk. In such a scenario, given America’s current dire financial straits, such private investors would effectively be holding
    American taxpayers hostage for whatever U.S. Government guarantees were agreed upon.

    I think, in the 1960’s, Lyndon Baines Johnson’s administration faced a similar crisis (or crises) and borrowed from the International Monetary Fund (but I would have to look that up to verify it). I’m not sure borrowing from the IMF is on the table in 2008, since foreign government central banks provide the funds lent out by the IMF, and foreign central banks might not be eager to prop up the U.S. financial system in this way in 2008. Please note that I am discussing the IMF from off the top of my head, so if anyone needs to correct me, please feel free to do so.

    So some kind of U.S. Government bailout seems the least-worst option, depending on how it’s done.

  13. RE: Comment #11, GallingGalla’s comment, “Dudes … you fucked up, … now take the consequences.”

    GalliGalla’s point, that lenders should bear the consequences of their own defective lending practices, is a completely understandable response to the prospect of government bailouts of private banks.

    But that response is mistaken in a failure on this scale.

    That’s because a bank failure on this scale could cause the entire credit system to close down, and the U.S. economy would revert to a cash or even a barter economy, since most of U.S. productivity, together with payrolls and day-to-day operating expenses, depends on the ready, day-to-day availability of credit at affordable rates.

    The White House produced its initial, unacceptable plan because, in the runup to September 24 and 25, the U.S. credit system was believed to be about to undergo the modern-day equivalent of a Depression-era “run on the banks,” as short-term creditors (e.g., investors in money-market funds which in turn invest in short-term commercial loans) began cashing out their investments for whatever price they could get. By September 24 and 25, this “run on the banks” reached the point that credit came close to disappearing from the U.S. economy except at exorbitant rates and in comparatively small amounts.

    That’s why, in a bank failure on this scale, private investors cannot simply be allowed to swallow the losses on their own, because the result will be that lenders who have survived the credit collapse will lend only at usurious rates and in small amounts, in order to accommodate the expected increased risk.

    Since such “surviving” lenders would very likely be lenders from energy/commodity-based economies, such as Russia and the Middle East, the U.S. economy would risk being managed for the benefit of lenders backed by governments that do not entirely share American values, especially under the guise of so-called “sovereign funds” which are under the control of foreign governments.

    So the question is on what terms the U.S. taxpayer is going to bail out private investors, and that’s what’s at issue here.

  14. RE: Correction to my Comment #13(?).

    At the end of the next-to-last paragraph, the term “sovereign funds” should be corrected to “sovereign WEALTH funds.”

  15. I think the whole idea needs to be chucked out the window for right now. Thia came completely out of left field, and i would question if this was almost more of an election based idea perhaps to arouse interest or favor in a certain candidate. I can’t see how congress would ever pass this law before President Bush is out of office, just in time to dump into the lap of a new president. Often the true intentions of plans aren’t revealed until the damage has been done, so if anything i think this is a gimic or a hoax to stir the american people to vote in a particular candidate instead of the other. As a college student, i worry about my financial future greatly now that the economy is in shambles. I am planning to propose to the woman i have fallen in love with in the coming year, but i wonder what financial crisis i will doom myself to by doing so. housing and jobs are difficult enough to obtain as it is, and on top of that i will be paying off college loans, gas, food, basic utilities, a car, a wedding, i mean… where does this end? And how is my generation supposed to survive? I think it’s a terrible idea to borrow this money because it will be coming from China and if you believe in bible prophecy, there is supposed to be a 200 million man army that will dominate most of the world and destroy 1/3 of its population. I’d be scared to think that if it is a country like China that we are so freely giving them exactly what they need to hang over our heads. In my opinion, this country is doomed to fall soon and I don’t think there is ANY safe place to leave to anymore. A government that is willing to bail out businesses that failed due to poor management, just to keep the rich people rich, is obviously incapable of protecting its people any longer, and if your country can’t keep you safe, you’re all alone.

  16. In the 1990’s Sweden had the same problem we have today. They solved their problem and came back strong. The model exist to resolve the US issue.

  17. this situation is a complete lack of requard for humans struggle towards achieving a peacfull civilization. these wealthy, greedy people are the cause of this, and now they want more money to steal, by instilling yet more fear in the american people. this is only another scheam towards the creation of the amero(a one world order currency).I am almost willing to suffer(lose my job,saving etc) in order to send amessage to the world that us americans will no longer continue to be victims of these evil, selfish beings.dont they realize if unemployment goes up etc, that crime will be greeting them at thier homes.I am completly opposed to this bailout, but since these politicos have left us with no option, i would like, and think it nessesary for this bailout to require the imprisonment of hundreds if not thousands of poeple that are the cause of this. im tired of working all day only to be given crumbs on my plate. give me the meal that i deserve. all of us americans have given up so very much, and now we are all going to hell, because these big business have brainwashed the public into a hedonistic mentality, that only creates a valuless society dependent on goods and services to make them happy.just like rome had games to entertain the public we need a public hanging of the people responsible for our inevitable demise. american people will hunt and destroy those whome history has shown to be at fault for our up and coming poverty.in my opinion no one in this world should make more than 1 million dollars and if they do they must be required to give it to others for the greater good of humanity.god and jesus crist please help us all. please save our children from enslavement.

  18. This is pretty much out of our (“We the people”) hands now, therefore the real practical question is whether or not we will allow this to happen again, 20 years hence, 90 years hence, or ever.

  19. As someone said above, I also don’t understand why the money doesnt go to the average amercian tax paying legal citizen. Why not take the 700 Billion and spread it out amongst those who make less then 100,000 a year, those with 1 or 2 mortgages to pay, and children to feed. Any citizen over the age of 18, who currently has a mortgage, or lossed their home in a foreclosure do to high interest rates should get a chunk of the change.

    Then the working citizen can pay thier mortgages thus putting money back in teh banks hands, and saving the American Workers who yes may have got themselves into debt, but hey its the American Workers money anyway, why not bail them out for their mistakes instead of some large bank who will only use it to pay these Overpaid CEO’s 6 figure saleries.

    If my mortgage was paid off, thats and extra 1000$ a month I can spend in goods and services to cloth and feed my family, which will boost consumer spending therefor giving companies back their business and re-hiring lost jobs.

    Give the money to the People, its my money and I need it now.

  20. We can all agree there is a definitive link between wall street & main-street and that main-street is comprised of hard working Americans who fuel the economy of wall-street through working, buying and banking and the acquisition of long term short term credit loans that fills the purses of Wall-Street. For to long now wall-street has operated with the idea they are the Kings & main-street is comprised of lowly Peasants from which they want to bite off the hand that feeds them $$$$$ snails & fish eggs not believing there would ever be a revolt? Greedy Corporations have setup shop in foreign markets at our expense. They do this forsaking our countries labor force with plant and operation shutdowns leaving behind an aftermath of displaced workers who have lost their livelyhood as they move overseas leaving the American job market for cheap labor in order to make lustful profit margins. Now that we are in peril with America’s market place that entails housing & credit, which affects us all, there seems to be a complete unwillingness of both wall street and this administration to assist with the economic distress of the middle class workers given toxic mortgages and credit loans for high yield interest rate returns handed out through predatory lending by those same institutions of wall street starting to crash, burn and disappear. They would rather keep foreclosing on us in the midst of a bailout while desperately wanting to transfer those bad debts to the American taxpayers. Now look who will be holding the bag of 700 Billion Dollars in wall-street indiscretions without any real guarantees. If there is going to be a depression so be-it I would rather live in a hut eating rabbit while the Kings of Wall Street eat crow!

  21. When “WE THE PEOPLE” (The everyday working class people, the majority, the tax payers), stand up to all the Politicians and the lobbyists, who have only their own interest in mind and really could care less about what happens to the people who have already been effected and those being effected, by the mismanagement of the Government as well as crooked big business. We, what they refer to as “the little people”, have all been sucked into this situation. We have the right to survive; we have a constitution that gives us those rights. People of America, stand up and take control of our future. First we should fire all the Politicians who do not back our majority vote. Fill the Political offices with people who have to pay taxes and are subject to the same consequences as the rest of the everyday working class people. We are the back bone of this country and it is time the big business and Government treat us with some kind of respect. There would be no big business if there were no working class to front there bill. As for the bailout proposal, give the money to the working class and we will stimulate the market. Let the bad business management bail themselves out or go bankrupt like the rest of us. As for them telling us we have to do this or that, it is all hog wash, more scare tactics, WE WILL SERVIVE!!!
    PS: Kudos to what Gregory said September 30, 2008
    I encourage everyone to read it!

  22. We need a third party, the “States Party”. A party that is dedicated to the preservation of the constitution of the United States of America. We need to return the power to whom it belongs, the States. The federal Government has corrupted its roll and purpose through intimidation, blackmail and greed for power. It has taken the power from the people and keeps it for itself. Through the Parties (Democrats, Republican), “tax policy” and the corruption of acts such as “The war powers act” and the “Interstate commerce clause” of the constitution, they have effectively taken complete control over the States (the people).

    Now to save their own power and control they have socialized the American economic system after raping the common folks for decades. They turned us against each other in the name of freedom and fairness and created an environment that makes it virtually impossible to call them on their corruption. They now effectively Taxed us with over 1 trillion of new spending to bail out the old system and created a new one (socialism). So we are to trust the same people who bastardized the old system with a system that has been tried and failed throughout history mainly do to the corruption inherent to power.

    Why should we take this? We need to boot them all out of office and fix their corruption and attacks on America. We the people need to rise up and let our voices be heard.

    Im sorry to say but if anyone believes either party will solve our problems, they are part of the problem. Start thinking for yourself folks, there is no savior within the current establishment.

  23. I agree with you that if we continue to blindly elect Republicans and Democrats, rich lawyers and professional politicians to office that nothing will ever change. It may already be too late to save us because our money is now in yachts parked in Monaco, Caribbean and Swiss banks, ski chalets in the Alps, Harvard law degrees, Lear jets and private South Pacific islands. I hope everyone likes what they have done for the elite. Any ideas on how to get it back? Oh, and be sure to open up the southern border so we can have an unstoppable influx of unskilled, uneducated, reproducing workers who expect free housing, health care, education, cars, college degrees, social security, credit cards and whatever else they want. After all, it’s cheaper for millionairs and billionaires to support a peasant class with all the free beans, tortillas, and babies you can give them than to deal with a middle class. Just ask the Mexican elite.

  24. I have been trying to understand the full scope of the tumble on wall street, the sub-prime mortgage crisis, and the banking bailout for the past few weeks.
    From what I can tell many people knew it was a mess, and key factor and end result is greed.

    I grabbed all the youtube segements and posted them on my blog andrewparks.com ,because this was the best account of the chain of events that led up to this that I could find.

    “…Monsters are real, and ghosts are real too. They live inside us, and sometimes, they win.” Stephen King Quote

    andrewparks.com

  25. Who is keeping track of every cent of this 700 billion dollar bailout? Let the auto industry take responsibility for their own actions. Fix your problems or go under. I have enough problems paying daily bills and do not have big brother over my shoulder waiting with handouts. Who is going to bail out my family and I as times get tougher. please do away with corporate rescue and start feeding thousands of dollars into middle class wallets which would no doubt stimulate the American economy. I emplore the treasury to let certain banks and automakers fail and spread the billions into the homes of hard-working middle class Americans grossing 100,000 or less. sincerely, RandyLacells ps.please have a politically influential figure or anyone with knowledge of this travesty respond. Thanks

  26. I think they should take that 700 Billion dollars and bail out the americans.. Give the money to us so we can buy items and bring the economy back up. Bail us out!!!

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