With bailouts, Wall Street is getting what it wants

Ted Sanford

Special to the Gateway

I have some questions about the financial crisis. First, why didn’t anyone see it coming? Actually, plenty of people did.

“The financial crisis was not an accident,” writes William Greider, “It was engineered by human architects ... and authorized by political actors in both parties.”

The Nation editorialized in 1999 that deregulation of the financial industry would pave the way for “future taxpayer bailouts of too-big-to-fail financial corporations.” Writing as a Gateway columnist in April 2006, I anticipated the puncturing of the real estate bubble and suggested it could “lead to a stock market collapse and recession.”

How are the bailouts supposed to benefit the economy anyway? The alleged purpose was to get credit flowing again. Turns out, banks don’t have to make loans if they don’t want to — and so far, they don’t. But they are spending on bonuses and dividends for investors.

Morgan Stanley executives were planning to use bailout money to pay themselves $10.7 billion, mostly for bonuses. AIG, the rescued insurance giant, will use some of its money to give $4 million “retention” payments (read: “bonuses”) to “key employees.” Bailouts are also being used to acquire other firms.

Secretary of the Treasury Hank Paulson has been given almost a free hand to run the bailout. He’s formerly earned $111 million in four years as CEO of Goldman Sachs, one of the outfits which got us into this mess. Hardly inspires confidence!

Financial institutions aren’t the only ones making out like Flynn from the crisis. Government employees won’t be managing the bailout. Private companies will. They’re being given hugely profitable, no-bid, multi-year contracts to do so.

There’s another, even bigger “bailout” you may not know about. The Fed has given nearly $2 trillion in emergency loans. Who to, and on what terms? They won’t say. Maybe they don’t want taxpayers to know collateral for the loans probably includes worthless assets like sub-prime mortgages.

We were told the financial industry didn’t need regulation. We could rely on “the collective wisdom of free markets.” Government interference would lead to socialism! So the financial industry was largely de-regulated.

Enforcement few remaining regulations was entrusted to people who don’t believe in regulation like Alan Greenspan. That’s like staffing your fire department with arsonists.

Free marketers object to bailouts on principal, right? Only they don’t.

Why don’t we hear cries of “socialism” now? Because what Wall Street really wants, and what they’re getting, is the privatization of profits (they get to keep their winnings) but socialization of risks (taxpayers shoulder the losses). Win or lose, they get the money.

Gene Lyon describes them as a “gigantic Ponzi scheme,” with taxpayers the last ones to buy in and therefore the ones who get taken. “Americans have been bamboozled” says Rep. David Scott of Georgia.

The cost of bailing out Wall Street is already being used as an excuse for why we can’t afford to solve other crises, like health care and education. Secretary Paulson speaks ominously about the cost of the bailout, reinforcing the need to “address” (read: “scale back”) entitlements: social security, Medicare, Medicaid.

Seventy-nine percent of Americans recently polled don’t approve of the bailouts. So why do our lawmakers? Could Wall Street’s huge campaign contributions and other favors to members of both parties have anything to do with it? Since 1989, senators who supported the bailout had received, on average, $3,986,723 each from the financial sector.

Hey, I’ve got an idea! How about bailing out us taxpayers? We’ve had “trickle down” for decades, and look what it got us. How about trying “trickle up” for a change? Think what we could do with $700 billion: adequately fund education, rebuild our collapsing infrastructure, get serious about global warming, take on poverty, inaugurate universal health care.

Maybe if we did something for the middle and lower classes, a little bit would trickle up to the multi-millionaires and billionaires.

Then we could all be happy.

Ted Sanford lives in Gig Harbor. He can be reached by e-mail at farcry@harbornet.com.