Further Catastrophes Following BushLeagueCheneGang Out the Door

So here we are, looking at an all-too-familiar story. The administration that has brought US the Iraq war and the Katrina response "is locking in another disaster before it leaves town" (as if that will ever happen). What to do? Well, we could have another orchestrated hit to take our minds off of it. (Surprise! Another mysterious plane crash with very little FCM (Fawning Corporate Media) coverage of the facts surrounding it!) That seems to work every time. And then there's that most entertaining holiday cocktail party tidbit explaining how the credit scare was marketed so successfully to the Rethugli-Con-adoring masses. (Don't overread this story of guileless manipulation - the idea of "W" being scared by Bernanke is almost enough high humor to tide you over the holidays.) This tall tale also bears the seeds of the history revisions we've had constantly ladled down our gullets lately as we are told that good-hearted little "W" only wanted to do some good for (to) the poor folk (h/t to Dostoyevsky). (A little editing was required - Ed.)

It was Sept. 18(, 2008,) Lehman Brothers had just gone belly-up, overwhelmed by toxic mortgages. Bank of America had swallowed Merrill Lynch in a hastily arranged sale. Two days earlier, Mr. Bush had agreed to pump $85 billion into the failing insurance giant American International Group.

Current Treasury Secretary Henry M. Paulson, Jr., of the Troubled Assets Relief Program (TARP - the $700+ billion bailout) "with its frequent changes of direction" is not only constantly embarrassing us on an international stage, but he has done his best to "upset the very markets this program was designed to calm." (*Flash!* There's also the news of Madoff Investor Rene-Thierry Magon de la Villehuchet, who is the first to commit suicide.) As Alan Blinder, professor of economics and public affairs at Princeton and former Vice Chairman of the Federal Reserve, publicly apologizes for:

It pains me to say this, because I was among the first to call upon Congress to create two institutions to deal with the financial crisis: one to buy and refinance home mortgages, the other to buy what came to be called “troubled assets.” The legislation signed in October empowered the TARP to do both. Sadly and amazingly, it has done neither. Regarding mortgages, Mr. Paulson is in a tong war with Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, who wants to deploy a small fraction of the TARP money to refinance millions of mortgages. Her plan may not be perfect — whose is? — but she’s pushing in the right direction. But he, apparently, disagrees and has devoted no money to this purpose. Regarding mortgage-related securities — the “troubled assets” themselves — Mr. Paulson stunned markets on Nov. 12 by announcing that he wouldn’t spend a dime on that purpose, either. Oh? As one of my students asked me the next morning, shouldn’t they at least change the name? Instead, taxpayer money has been used mainly to recapitalize ailing banks. To be sure, this use of the TARP is perfectly legal. The legislation gives the secretary broad authority to buy “any other financial instrument” that he deems “necessary to promote financial market stability.” That certainly includes buying bank stock. The question is not one of legality, but of judgment. Old-fashioned believers in democracy may recall that a reluctant Congress was sold on the idea of buying troubled assets, not on injecting capital into banks. No wonder members are crying foul. In fairness, Mr. Paulson was not alone in advocating capital injections. Many economists and financial experts agreed. But I doubt that many of them intended for the government to buy preferred stock with no control rights, at above-market prices and with no public-purpose strings attached. The automakers are not being treated this way in their $13.4 billion loan. . . . But suppose you believe (though I don’t) that recapitalizing banks was the best use of all the money. Even then, the secretary’s execution leaves much to be desired. Never mind the lack of transparency and the management issues recently cited by the Government Accountability Office. Think about this:

Treasury has bought preferred stock with no control rights. The 5 percent dividend rate that taxpayers will generally receive is half what Warren Buffett got from Goldman Sachs. Banks receiving capital injections through the front door are generally allowed to pay dividends out the back door. And there are no public-purpose quid pro quos, such as a minimal lending requirement. So banks can just sit on the capital, which is what most of them have done, or use it to make acquisitions, as a few have.

But, back to the future:

And corporate America, eyeing a lucrative market, delivered in ways Mr. Bush might not have expected, with a proliferation of too-good-to-be-true teaser rates and interest-only loans that were sold to investors in a loosely regulated environment. “This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.” But Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.

So, what's not to like (if you belong to the right clubs)? Cheers! (Yuk! Nice Christmas present.) Suzan ____________________________