Web Letters | The Nation

Web Letter

Yes, we've been had. Taken. Bamboozled. This is a buyout plan, for the well-heeled Wall Street cronies of our dysfunctional "representative government," so they won't lose all their accumulated wealth after having shared so much of it with the Washington crowd, in support of their campaigns. If you do the math, there is no way "We the People" will ever be able to even pay down the principle debt in any of our lifetimes or those of our children. So stop all that drinking and start thinking.

I agree with much of Mr. Hague's comments [below], particularly with respect to rescuing the homeowner. With respect to saving the country, I suggest that, first, we must freeze all assets of the people who perpetrated this con, particularly those in decision-making positions. That would send a message that the actions that have brought this great nation to the point of near-collapse are tantamount to "economic terrorism" and will not be tolerated at home or from abroad (many of the players from the dot.com craze are now abroad, e.g., Dubai--where Bill Clinton had to divest $40m during his wife's primary run).

I also recommend nationalizing the energy sector, at least the major companies, because they owe us (the Exxon Valdez oil spill, price-gouging, global warming... and we still haven't seen the minutes from Cheney meeting with them at the beginning of this administration), but mainly because they hold such a sway over the American economy and because they are one of the few industries we have that is still turning a good profit. We need that profit right now, to start paying off this debt, and if that isn't a good enough reason, then think--if we take them over now, particulary, say, Haliburton, Dick Cheney's stocks will be worthless when he finally leaves in January. That should be worth a try anyway.

edith thomas

Jamaica, NY

Sep 20 2008 - 2:11pm

Web Letter

This crisis is the product of mark-to-market accounting required by FASB and the SEC over the past fifteen years. If the subprime mortgage backed securities were valued based on their reasonably projected future cash flows, then the banks, insurance companies, Fannie/Freddie, etc. might have had 20 percent losses, but they would have been fine in the long term (see William M. Isaac's opinion page article in the September 19 Wall Street Journal). Instead, the regulators required institutions to value these securities at zero, because the markets for them temporarily dried up. In short, bad regulation based on incorrect theory--efficient markets, i.e., the market is always right--laid the groundwork that made the crisis possible.

Paulson ensured that a bigger bailout would be needed when the Fannie/Freddie bailout wiped out common and preferred shareholders. This meant that every owner of bank, insurance company or other financially oriented common stock of companies that might conceivably be bailed out by the feds in the future moved to sell their shares. When the dust settles, I'm betting that we'll see that the sale of common shares by owners, and not short sellers, is what drove down share prices. After all, short interest in the financial sector dropped by twenty percent between July and the end of August (according to the Wall Street Journal article). This means that short sellers were net buyers, not net sellers, of financial stocks over that period.

That the American taxpayer is going to be subject to paying for this is a crime. I only fear that we will substitute more regulation for what is needed, which is better regulation. Also, for once and for all, our idea of how economics works needs to be based on a behavioral model, rather than on the very dated and imperfect notion of efficient markets. Ideas have consequences.

Jim Scott

Fort Mill, SC

Sep 20 2008 - 12:18pm

Web Letter

I agree that this bailout is nothing but a swindle and will transform our society by putting us into a Great Depression of morality. With all due respect to Secretary Paulson's august position and heavy responsibilities, he should go straight to Hades.

I'm not going to put a partisan spin on this. But I'm a thinking person, business lawyer, banker by upbringing where I've participated in making/reviewing thousands of loans and board service, I've served on a small insurance company board and I have represented more thousands of debtors and creditors.

What this bailout does, and I equally condemn all the fundraising--i.e., bribe-taking--Democrats and Republicans who took money from Fannie and Freddie (why where fannie and freddie allowed to contribute at all?), is to take the risk, and therefore the honor, out of the capitalist system. Why have I tried to run honest businesses and pay my bills for all these years, if you can bail out the dishonest loan-takers who lied on their applications, mortgage brokers who knew the applications were full of lies but passed them upstream, the bundlers thereafter and the securitized lenders upstream of that who both also knew of the fraud and were adherents of the "prices only go up" theory.

Has not the government now given a clear signal to all its citizens to cheat on their loan applications and taxes and to take financial advantage of their fellow citizens at every turn? The casino has been rigged; is not self-help the only option left to those who have played fair?

Paulson has turned every risk I have ever taken and profited by into a fool's errand. Paulson has made every mortgage and other loan payment I have ever made an act of a sucker. Paulson has given every citizen the incentive to wiggle out his just debts--because if all these others are getting off the hook, why shouldn't the rest of us?

Paulson has now corrupted the US (as the cowardly lion would have put it) from top to bottomus.

Although I certainly do mean to single out Paulson, he is not the only one. The US Congress is now equal to the French government between the great wars--a thoroughly corrupt and detestable bunch of soft thieves, whose many failures led straight to Adolf Hitler by default. I hope that Paulson's and Congress's equal lack of character doesn't lead to an equally horrible result.

Thank you, Secretary Paulson, for destroying the nation's moral underpinnings by rewarding the corrupt.

keevan d. morgan

Wilmette, IL

Sep 20 2008 - 11:53am

Web Letter

Let's, as a country, change policy from "too big to fail" to "too many to fail" and safeguard the "many" Americans from foreclosure and other financial perils.

Edward Vander Molen

Grand Rapids , MI

Sep 20 2008 - 11:49am

Web Letter

The truth is, way more than a swindle, this "mother of all bailouts" is literally a financial coup d'état of our entire captalist system. Naomi Klein's "shock doctrine" coming home to roost. And if history does indeed repeat itself, then Mussolini's statement that "the first stage of fascism should more appropriately be called corporatism, because it is the merger of state and corporate power" appears to sum it all up. Our democracy has been hijacked right under our noses by a cabal of financial elitists and politicians determined to preserve the wealth of the rich at the expense of the masses. Patriotic Americans need to rise up and bring about regime change and use our Declaration of Independence as the rallying flag once again.

dean marshall

Richmond, CA

Sep 20 2008 - 8:35am

Web Letter

The Bush government financial rescue plan will, in real terms, prove to be at least three times the size of the Swedish bailout of banks in the early '90s. The cost to the Swedes was 4 percent of GDP, causing four to ten years of pain for most people, depending on how pain was reckoned.

The majority of people in the US--where the 'assets" they're buying are "worth" far, far less than what the Swedes had to buy--can look forward to suffering for fifteen to twenty years.

Don't look to any politicians to ameliorate that pain by much. But do expect dissent to be swiftly, brutally, expeditiously crushed.

Yes, kiss goodbye to universal health care insurance, pre-school programs, environmental protection.

But be prepared to embrace yet more war, as only the US military budget--larger than all the rest of the world's arms budgets combined--will be experiencing growth ...

...unless you consider growth in unemployment, foreclosures, infant mortality rates, homelessness, worth reckoning as growth.

R.H. Weber

Geneva, Switzerland

Sep 20 2008 - 6:33am

Web Letter

I wish I had read this article before I wrote my elected representatives. I merely suggested no bail out without regulation. Also, since AIG was too big to fail, I suggested selling off its profitable subsidiaries individually, in order to disperse the risk among many companies that would not be too big to fail. Expanding on that thought, it occurred to me that anti-trust action be taken against any holding company that is too big to fail. It takes only a few idiots to destroy a large holding company and the market!

Pervis James Casey

Riverside, CA

Sep 19 2008 - 3:43pm

Web Letter

The Federal Reserve, a private corporation, owned by the member banks, has enabled and encouraged the financial mess we are now facing. Through massive leveraged debt plowed into dubious financial instruments called derivatives, the financial behemoths have led our whole economy into a minefield of economic destruction. The explosions are just starting.

It is time, past time to establish a truly public, central bank. As Greider says, we must take on the whole mess, but why should we borrow money from the Federal Reserve to clean up the monster they spawned ? We need a public central bank that creates money without debt--and what most Americans have been shielded from is that it is our birthright under the Constitution.

For an excellent take on all this, see "It's the Derivatives, Stupid! Why Fannie, Freddie, AIG had to be Bailed Out," by Ellen Brown.

Michael McKinlay

Hercules, CA

Sep 19 2008 - 2:41pm

Web Letter

The federal government should go to the source of the current problems, which is the sub-prime mortgage contracts themselves. Like money that enters into a local market, there is a multiplier effect for this debt because it can be used "like money" and formed into new assets for expanded borrowing and investment. These mortgage contracts, which are the basis for expanded investments, should be made solid and viable and the expanded investments emanating from them will take care of themselves. This is the least expensive way to guarantee solving the panic caused by the bad mortgages. Solve the problem at its basis prior to the multiplier effect and not at its furthest reaches, where the costs would be seemingly unending and not inspire confidence.

This problem has caused the credit markets to shut down and has abruptly halted the construction, real estate and related industries. Inventories of homes are growing, which causes a downward spiral of home prices and several rounds of devaluation of assets held on the books by financial companies. Intervention is needed now by the government to stop this spiral of deflation. The important point is that it must be done at the point of the original mortgage contract. The government must segregate and guarantee these contracts and make them whole or auction them off. Most mortgages are front-end loaded with interest and the mortgage borrower pays back several times the principal in interest. Therefore, there is a lot of room for innovation and compromise. For example, you could remove the front-end load and amortize the interest over the following twenty years in order to give incentive to the borrower to stay with the mortgage. It would be attractive to the borrower who owes more than the home is worth if they could pay down a substantial amount of principal quickly and get the loan above water.

Segregating the loans while you guarantee them and fix them enables the credit market's traffic to flow again, increases home sales and stock prices, helps halt the deflation and reverses several problems that are currently occurring. Financial corporations will argue for a larger bailout because their earnings may be impacted, but this is not the taxpayer's problem. In fact, they have already incurred large fees for being careless in their mortgage business and risk management and deserve some losses. Let the financial companies guarantee their subsequent investment vehicles, as the government is doing its part in solving their liquidity problem. If this bail-out is done correctly, it will lessen the exposure of the AIG insurance venture, which is also being bailed out by the government.

The fiscal policies of this ideological administration, which have been managed for the benefit of less than 1 percent of the population and fostered these problems, must end. The fact that it is this current administration that is originating the bailout makes one expect that they will want taxpayers to guarantee all of the bad ensuing investments that they originated, based on these mortgages, under this "no oversight" administration. This will prompt seemingly endless payments to be made outside of the USA to an unknown amount of investors and overwhelm the government. The government plan must not take care of financial investors and financial companies at the expense of the people. Our government needs to be the overseer that manages the fiscal policy of the country for the general welfare of all its people and keeps the money at home. Any other actions to the contrary should be considered racketeering.

William J. Hague

Hoboken, NJ

Sep 19 2008 - 2:30pm

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