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Stop the $700 billion stampede. Despite the table pounding by Treasury Secretary Henry Paulson and President Bush, the world, even Wall Street's world, won't come to an end if Congress doesn't pass a plan next weekend to bail out the nation's financial system.
Even as news reports circulate that a deal is close, there's no good reason for Congress to pass this "rescue" plan without nailing down more of the details. And I can think of three good reasons that our representatives should take big, calming breaths before committing $700 billion of our money.
If we don't nail down these details, we risk: (1) creating this mess all over again; (2) giving Wall Street executives a free pass on any criminal acts they may have or might commit; and (3) putting the same Wall Street companies that got us into this mess in charge of the cleanup.
Let's take these one at a time.
No. 1: Don't solve a problem with a problem
Paulson says the crisis is so pressing that we need to rescue Wall Street immediately -- and then later develop new regulations to prevent this problem from ever occurring again.Absolutely, 100% WRONG. Once Wall Street has got its hands on taxpayer money and is starting to breathe easily again, the federal government will have lost all of its leverage to force meaningful change on the financial system.
- Talk back: Are you worried about a rushed bailout?
Remember that business as usual in Washington means powerful industry lobbyists writing the laws that govern their industry that are then introduced by senators and representatives in return for the money that Wall Street gave to their campaigns.
How else do you think we got laws that exempted derivatives from regulation? Unless "We the People" exact our pound of regulatory flesh now, while we hold the power of the purse, nothing, or as close to nothing as possible, will get fixed.
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That's especially true because the required fix isn't a question of a few tweaks here and there. Meaningful reform will require an overhaul of the regulatory agencies in Washington that failed us so thoroughly in this crisis. It will require new regulations to govern the derivatives markets. It will require new rules governing how much and what kind of capital a financial institution requires.
And just in case you're so cynical that you think none of that can happen, just look at what has happened in New York state in the past few days. On Sept. 22, Gov. David Paterson and state Insurance Superintendent Eric Dinallo announced new regulations that will govern the kind of derivatives -- credit default swaps -- that led to the downfall of insurer American International Group (AIG, news, msgs).
Starting Jan. 1, the state will begin to regulate credit default swaps as insurance products in cases where the buyer of a swap also owns the underlying bond that the swap is meant to insure. In these cases, the new rules will increase the minimum capital and reserves that a financial company must have and limit the number of swaps that a financial company can use to insure a single bond issuer.
The state has authority over only about 20% of the credit-default-swap market, but if a state government can move this fast on basic reform, there's no reason Washington can't.
What Paterson and Dinallo grasped was the need to strike while Wall Street is panicked and disorganized. In Washington, it's now or never.
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Buffett gets a breakWarren Buffett paid $5 billion and got a 10% dividend and stock options to buy Goldman Sachs stock at a discount. Taxpayers deserve the same chance to profit with their $700 billion, says Jim Jubak.
No. 2: Catch the crooks
Paulson has demanded that Congress and the courts waive all authority to review the decisions of the Treasury in running this bailout. Congress shouldn't buy this grab for legal immunity. It's absolutely, 100% WRONG.Here's what the wonderful folks at the Treasury and the Federal Reserve proposed: "Decisions by the Secretary pursuant to the authority of this ACT are non-reviewable and committed to the agency discretion, and may not be reviewed by any court of law or any administrative agency."
You've got to be kidding! Wall Street CEOs could lie to the Treasury, inflate the prices of their securities, fraudulently misrepresent what they were selling to taxpayers, and, if the Treasury decided to look the other way in order to get the markets back on their feet again, no one could take anybody to court, recover any damages or even hold a meaningful congressional hearing on the issue.
Continued: The creation of false prices
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