Eugene Weekly : News : 9.25.08

Leave No CEO Behind
Big bailout sparks calls for accountability
by Alan Pittman 

After handing out $33 billion in bonuses last year, Wall Street executives now want a quick trillion dollar bailout from taxpayers for a credit crisis they created.

That doesn’t sit well with local Congressman Peter DeFazio. “We need major reform,” DeFazio said. “There must be consequences for the people who created this crisis with a surtax or a wealth tax targeted at wealthy investors and Wall Street executives.  We need to cancel their golden parachutes and their bonuses.”

But the Bush administration and its Treasury Secretary Henry Paulson say Congress should hand over the money quickly and shouldn’t be “punitive” toward the executives.

Paulson himself was one of those executives, taking a $39 million bonus from Goldman Sachs in 2005 before coming to work for Bush. 

Paulson “is compromised” by his relationship to Wall Street and “has been consistently wrong and out of touch” about predicting the credit crisis, DeFazio says.

“Congress should not do this this week,” DeFazio said of Bush and Paulson’s call to rush the bailout. He compared the dire Bush economic rhetoric to the WMD hype in the run up to the Iraq war. “This is way too much like the rush to war,” he said.

While taxpayers are left holding the bag for their mistakes, Wall Street executives have become multi-millionaires through creating bogus financial instruments. Paulson made a reported $600 million on Wall Street. His successor at Goldman, Lloyd Blankfein, took a record $70 million bonus last year. Paulson’s deputy at Goldman, John Thain, went on to Merrill Lynch where he and two top deputies were reportedly recently given $200 million worth of golden parachutes.

DeFazio isn’t the only Democrat criticizing the bailout. 

U.S. Senate candidate Jeff Merkley called for limits on executive compensation. He said his opponent Republican Sen. Gordon Smith “must stop giving blank checks to the Bush administration — he did it with the Iraq War, and he shouldn’t do it now.”

Democratic presidential candidate Barack Obama told NBC news that Congress should make sure “that CEOs, investors, aren’t walking away with millions of dollars” in the taxpayer bailout.

Here’s some of the reforms that Democrats and progressives are pushing for:

Trickle Up. While Republicans may want to save the economy by bailing it out at the top, bailing out the little guy could be a better approach. Aid for Main Street could include protections from eviction and stimulus such as infrastructure and county payments expenditures.

Anti-Trust. “We need to deal with this issue of too big to fail,” DeFazio says.  “If they’re too big to fail, they’re too big to exist. We need to start enforcing anti-trust laws.”

Regulation. The era of anti-regulation may be over. The government has mechanisms to prevent bank and insurance company failures with minimum capital requirements but the Bush administration didn’t apply those rules to the wheeling and dealing of the big investment banks Freddie Mac, Fannie Mae and AIG.  Obama faults the Republican “ideology that says that regulation is always bad” for the crisis. “What we don’t want is for them to be able to say heads I win, tails the taxpayer loses.”

Compensation. The government could make bailouts contingent on capping or eliminating golden parachutes and huge bonuses and stock options for the executives who created and profited from the risky loan crisis.

Tough Bargaining. In buying the “radioactive toxic waste” of Wall Street’s bad loans, the government could insist on large equity stakes in the banks, on low prices and on personal liability for executives who misrepresent the asset’s value.

Taxes. Obama says his big tax increase on the wealthiest 1 percent could help recoup some of the “outsize profits” Wall Street executives and speculators made in running the economy off a cliff. Dean Baker of the Center for Economic and Policy Research says the government could impose a financial transactions tax to raise $100 billion a year in revenue to reduce the ballooning national debt.

Prosecution/lawsuits. A recent article in the Columbia Journalism Review faults the financial press for “lazy musings” blaming everyone’s greed for the financial meltdown while “missing the crooked heart of the credit crisis.” The FBI has launched criminal investigations of the banks that fueled the crisis with unscrupulous mortgage lending practices. The states of Illinois, California and Florida are suing the huge lender Countrywide alleging financial fraud. In 2000, the media spun blame for the California blackouts on a “perfect storm” of circumstance before finding that Enron was criminally manipulating the market.

Whatever the solution, the stakes are high. How high? A trillion dollars in $100 dollar bills stacked would reach 678 miles into outer space.



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