The Democrats in Congress have to stop the big bailout plan as it currently being discussed. Let me repeat some of the points I have been making in posts this week. The key principles have to be:
1) No assumption of debt without assumption of control. Lets start with the unambiguous nationalizing (rather than this half fish and half fowl conservatorship) of Fannie Mae and Freddy Mac, combining them, and restoring them to their original purpose, helping to provide mortgages to the middle class. The rest of the banking system can come later, but at least, rather than just coming in as a good fairy to remove bad debt from imprudent banks, force banks to cancel dividends, and issue new stock with federal assistance, that the treasury will control. Or warrants that would have the same effect. This is no longer pie in the sky lefty talk; I heard Bill Kristol saying something similar about forcing banks to issue warrants this morning on Fox. There are very real questions whether this is the cheapest way to proceed; certainly it is hard to see where the up-side is in all of this for taxpayers. We cannot simply spend $700 billion to help bankers resume being bankers. And as Paul Krugman pointed out, the only way this will stimulate the economy is if the Treasury grossly overpays banks for their illiquid assets. The way to avoid “moral hazard” is to take over control of the banks. Or to use the Lenin quote that has been making the rounds this week, the government needs to take over the “commanding heights” of the economy.
2) But to counteract the credit crunch that will come whether or not this bailout is in place, there needs to be aggressive Keynesian type stimulus packages. Oh, and get the troops out of Iraq now. If we couldn’t afford the war before, we certainly can’t afford it now.
3) There needs to be strict limits on executive compensation on any regulated institution, draconian capital requirements imposed, and strict limits on a whole range of speculative activities, done in conjunction with securities regulators worldwide. And any plan needs to be administered by a new non-partisan agency.
4) Barack Obama, this is your moment of truth, your hundred days, your secession crisis, your Guns of August. It would have been more convenient if this occurred once you were elected president, but that’s the way it is. If Obama and the Democrats in Congress simply buy the talk of “bipartisanship” and adopt this monstrously expensive plan (which I predict will not work) the first term of an Obama administration is essentially over. Health care, serious reinvestment in our domestic economy and infrastructure are on the line now. Don’t do anything overly “bipartisan” today you will regret tomorrow and for the rest of your life. The future course of this country over the next four years will likely be decided next week. Don’t wimp out. And you know, Barack, and other Democrats in Congress, the magnitude of this problem even makes the question of who does or does not not get elected president in November pale into relative insignificance.