Bailout, schmailout

In any loan, the lender demands to know the use of proceeds. It is beginning to appear that we, the people, aren’t getting even that from the use of our money in the bailout.

The Times’ editorial this morning complains that banks may use the bailout funds to buy other banks. NPR’s Planet Money last week reported on fine print that would allow the banks to use the funds to pay dividends to shareholders (there’s some Talmudic debate on that) or buy back stock, only enriching the owners. I heard on local New York TV yesterday — for what it’s worth — that the bailout means “good news” for Wall Street employees: higher bonuses. The strictures being put on banks are merely lipstick-on-pig limitations on executive pay. BFD. They should be explicit requirements on the use of funds.

As Planet Money’s Adam Davidson said, my blood is boiling.

Now we have GM trying to remake itself into a bank to get a piece of the bailout bonanza.

First, our money should be used to shore up credit and confidence and we should be demanding that a condition of getting a penny.

Second, if you want to bail out GM and other companies, I’ll give you a new idea: Take over their health insurance obligations.

If you’re going to socialize something, don’t let it be the banks. Let it be the common good of health care. Take over health insurance and make it universal.

How will we pay for it? Taxes, of course. But won’t that put GM back in the hole? No, because it has no profit to tax. You want to redistribute wealth, then this will have the profitable paying for health care and it will take a huge and looming burden off the big, old giants, giving them a chance — one last chance — to get their acts together.

Making health care portable and universal will also, I predict, release a flood resignations as people no longer feel trapped by their jobs because it is the only way to get coverage. This can lead, in turn, to new efficiencies in companies and a wave of entrepreneurism (and with it, innovation, wealth creation, and new tax revenue). Let’s try trickling up.

And if we’re going to use federal funds to try to improve the economy, I say we should be using it to provide universal broadband internet access better than anyone in the world: our new interstate. It will lead to more new companies, new jobs, new skills, better government, more competitiveness on the world market, and better education.

And while I’m playing New York Times columnist, giving my prescription for the nation as if I were running it, I’d take advantage of low oil prices by putting a tax on fuel that guarantees a minimum price to both keep demand low and, far more important, to fund immediate and for-once-real development of — and tax credits for — alternative energy, which will also create jobs and make us competitive in the world market.

The tragedy of the bailout is that we could use this tremendous resource and get nothing for it.

: LATER: Tom Evslin has a different proposal for a gush-up (vs. trickle down) approach (tagged ‘unscientific economics’).

  • http://robertdfeinman.com/society robertdfeinman

    Jeff:

    You need to follow the business news a bit more closely:

    General Motors and the United Auto Workers have struck a deal that lets the automaker move $50 billion of retiree health obligations off its balance sheet. In return, the union gets to set and manage the health-insurance benefits.

    – Sept 26, 2007

    This doesn’t invalidate your larger point that we need a national health coverage system. If you are really interested in the topic visit http://www.healthbeatblog.org/ where such topics are regular fare.

    It seems there is little pressure for change because those with the most voting clout (middle class voters in stable jobs) still get their coverage through their employers and are afraid to rock the boat. In addition the large number of middlemen who service the present inefficient system are a strong lobbying force with congress.

    Notice that neither candidate is proposing any substantive change to the system.

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  • http://www.speak-tome.com Ted Murphy

    “Let’s try trickling up.”

    I think that’s the plan. And I think the US is eager to begin. Will it work? I’m resigned to being on the wrong end of the transfusion with the stopcock opened wide.

  • http://futurechaos.wordpress.com/ FC

    “In the Depression there were many Banks that failed and the authorities tried every means in their power to get as much cash as possible of the liquid funds into the hands of depositors.” Private Banker No. 30

    “‘’What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,’’ White House press secretary Dana Perino said.” Dealbook

    Banks exist to protect deposits. Lending is down because the economy is so bad, so less people are in the market for loans. You can’t force people to borrow money. Many of the people who borrowed can’t repay the loans. What’s the solution? Lend more money people can’t afford. If loans got us into the mess, the logic is that loans will get us out of it. Look at the national debt and you’ll see how these people think. They’re talking about printing unlimited money as publishers face turning off the presses. Maybe we can just all print our own money on our HP Deskjets next.

  • http://futurechaos.wordpress.com/ FC

    “‘’As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy,’’ Mr. Ryan told the annual meeting of the Securities Industry and Financial Markets Association”
    http://dealbook.blogs.nytimes.com/2008/10/29/white-house-to-banks-start-lending-now/

    In other words, now the risk of the loan is put on the taxpayer so we’re going to use Fannie Mae strategies to make loans. Why not make more bad loans? The bank gets all this cash and if the loan goes bad, so the hell what. I want a $50,000 loan. You have somebody with a mortgage loss of $30,000 because the property value dropped and now they want to borrow more money to keep up with their expenses instead of selling property at a loss. The logic is that they didn’t borrow too much, they didn’t borrow enough money they can’t repay and the White House is saying deficits don’t matter. It’s lunacy.

  • invitedmedia

    remember what i said about bankers “holding a gun to their own head” back when this bailout was being formulated?

    “fire away” i think were my exact words.

  • http://futurechaos.wordpress.com/2008/10/29/post-bail/ FC

    GM is going to be a bank to get bail money. The banks can now start building cars. The newspapers can just print money and the Treasury can print the news.

  • cantwait

    Like the inexplicable rise in oil prices earlier this year, the bailout represents a cash-grab by Republican corporate cronies. The message is this: “Boys, we’ve only got a few more months in power so you’d better take whatever you can before the next guy takes over.” And that’s what’s happening.

    I mean, isn’t it so obvious at this point? Of course Bush and Paulson aren’t placing restrictions on the money being given away… that’s because it is a GIVE AWAY.

  • http://www.myspace.com/chris_mcv Chris McVetta

    As a native of Ohio, I sincerely wish “Joe The Plummer” would go the way of Clara Peller, The Dodo, and The Noid from Domino’s!

  • http://markbrand.wordpress.com markbrand

    Jeff for Ombudsman. Clearly we need a small group in charge to “correct the flaw” Greenspan admits (A. Rand 2.0 currently unavailable). This group then requires a reading and jury of the play out. And and executive to manage and regulate. As the Times points out this morning, no accountability or principle stated to put the bailout in play is a remedy worse than the cause – aka the bailouts using cash for unmanaged purposes. Planet Money boils my blood too, but who is in charge?

  • http://farces.com/ Michael Fraase

    If the credit markets have, in fact, seized—and I’m not sure I believe they have—the resolution is straightforward, costs the US taxpayers nothing, but requires a backbone in US agencies and our elected representatives.

    At 7AM tomorrow morning the US Treasury, Comptroller of the Currency, and Federal Deposit Insurance Corporation (FDIC) jointly announce that one of the core functions of banks is to make good loans. If said banks don’t immediately start making good loans they no longer meet the criteria of being a bank and will have their banking licenses revoked starting at 7AM the following morning.

    Deposits will immediately be seized and auctioned to banks willing to make good loans. This has to be tied with banks being mandated to write down their questionable assets to their true values.

    Concurrently, the US Congress has to magically grow the appropriate anatomy and immediately reenact the Glass-Steagall Act in its entirety.

  • invitedmedia

    how soon until andy cuomo is outed?

    spitzer was on to something when he was, now cuomo is jacking with “their” bonus $.

  • http://marketfreedom.blogspot.com/ Andrew

    I’m sick of half-baked “solutions” and politicians “reaching across the aisle,” compromising their ideals in the process. How about no bailout and no socialized health care? The lesser of two evils isn’t good enough.

  • Atacks Payer

    The credit in the market far exceeds the value of the market. Why else would it suddenly “dry up” when the value it is based on starts to be questioned? There’s lots of money, just not at “traditional” prices, and apparently no one wants to pay the new price – so Uncle Sam is going to subsidize by taking value (taxing) from those who least can afford to part with their (declining) wealth. How this fixes anything evades me.

  • http://ifyouwriteit.blogspot.com/ Descartes

    The real trouble with the Bailout is that there is no money-nada. 1 trillion might as well be a gazillion-it doesn’t exist. The US Government is like the average US citizen-it does not live within its means. We like to forget that you still need to pay the bills once in a while.

    Its all smoke and mirrors.

  • http://www.leebow.com Ken

    Yep. When asked a few weeks ago about how the banks can use the money, Paulson hedged the question. Come to find out after some research, they can use the funds to buy down existing debt at higher cost.

    Oh well, that’s what you get when an ex-Goldman Sachs guy is running the the show.

  • Rebecca Harshbarger

    When considering the benefits of universal healthcare, I didn’t consider that it might provide a lifejacket to GM, as well as small businesses trying to get healthcare for employees. Sign me up for socialized healthcare and internet.. and let Wall Street stick to the free market, since that’s what it was calling for when times were good.

  • http://www.beyondbailouts.org Cord Blomquist

    Check out beyondbailouts.org a site designed to fight against further bailouts and keep the existing scheme from becoming staggeringly corrupt.

    CEI has joined with the National Taxpayers Union (you may remember McCain citing them during the debates) to create BeyondBailouts.org. The allows visitors to write their Congressman, sign a petition, and view syndicated news from several think tanks and advocacy groups.

    Our roster includes the Cato Institute, the Heritage Foundation, and the Club for Growth.

  • http://marginalizingmorons.blogspot.com/ CaptiousNut

    I see this blog is as economically illiterate as ever.

    First of all, if you are going to talk about companies *morphing into banks* so they can cut the line for bailouts you had to mention Goldman Sachs first. Their conversion to a *bank* couldn’t have been more transparent.

    Of course the banks are hoarding the cash – just as they did in the early 1990s.

    They are also using it to pay bonuses.

    http://marginalizingmorons.blogspot.com/2008/10/unfreaking-believable-main-streets.html

    What started out as a coherent discussion on the failings of the *bailout* quickly degenerated into a call for nationalized healthcare and a statist directed energy plan.

    Snooze.

  • http://www.spankme.com Ben Berspanky

    So, suddenly you’re a socialist. You old reactionary fraud.

    I suppose you made a good decision. It’s fashionable now.

    Have you sent your resume to MSNBC?

  • http://williambanzai7.blogspot.com williambanzai7

    WHERE HAVE ALL THE BAILOUT BUCKS GONE?
    (Where Have All the Flowers Gone-Pete Seeger)
    WilliamBanzai7

    Where have all the bailout bucks gone?
    Long time passing
    Where have all the bailout bucks gone?
    Long time ago
    Where have all bailout bucks gone?
    Greedy bankers and AIG Sponge Bobs have picked them every one
    When will we ever learn?
    When will we ever learn?

    Where have all the hedge funds gone?
    Long time passing
    Where have all the hedge funds gone?
    Long time ago
    Where have all the hedge funds gone?
    Exploded every one
    When will they ever learn?
    When will they ever learn?

    Where have all the investment bankers gone?
    Long time passing
    Where have all the investment bankers gone?
    Long time ago
    Where have all the investment bankers gone?
    Gone and laid off every one
    When will they ever learn?
    When will they ever learn?

    Where have all the investors gone?
    Long time passing
    Where have all the investors gone?
    Long time ago
    Where have all the investors gone?
    Fled to cash every one
    When will they ever learn?
    When will they ever learn?

    Where have all the trading profits gone?
    Long time passing
    Where have all the trading profits gone?
    Long time ago
    Where have all the trading profits gone?
    Covered with toxic mark downs every one
    When will we ever learn?
    When will we ever learn?

  • http://www.myspace.com/chris_mcv Chris McVetta

    Chris McVetta wants his own government bailout, damn it!

    It includes:

    A beachfront condo!

    Evangeline Lilly!

    A never-ending bucket of Corona!

    What? Too much???

    As always (with our current government): I am shaken, not stirred!

  • http://smoothspan.wordpress.com/ Bob Warfield

    A bailout that merely shores up the symptoms (e.g. too many bad loans) without fixing the disease is doomed to be a repeat business.

    GM is a great example. Forget bailing out their “bank” business. GM’s problem is people don’t want to buy their cars. Fix that and the company is really bailed out.

    I propose the idea of “Executive Mashups” for these troubled companies. In GM’s case, the Executive Mashup would be to partner with Steve Jobs to build the iCar.

    More on my blog:

    http://smoothspan.wordpress.com/2008/11/12/steve-jobs-the-icar-barrack-obama-and-john-doerr/

  • http://www.wallstreetfrontier.com Dion Cini

    I think it’s about time we let the free market system takeover from this point, moving forward.

  • http://www.rhoadslucca.com/invest Independent Investment Adviser

    Just want to point out that this article seems as timely and relevant now – TWO YEARS LATER – as when it was written. Of course, we now know more about what happened behind the scenes and we know the failure of many of the components of the bailout to solve underlying structural issues.

    Pat on the back!