Bailout plan not embraced
Producer: Carlo Basilone
CARLO BASILONE, TRNN (VOICEOVER): The top financial officials in the United States appeared at a Senate banking committee hearing in Washington, DC, on Tuesday, pleading with Congress to act swiftly on a $700 billion plan to bail out Wall Street financial speculators from their bad debts and losses from their risky and reckless investments. The legislation that the administration is promoting would have the government buy bad mortgages and other troubled assets from financial institutions at their original price, thus getting those debts off their books. The plan would also give the treasury secretary unprecedented powers to spend, while offering virtually no oversight. Many legislators were skeptical.
SEN. RICHARD C. SHELBY (R-AL): I do not believe, however, that we can solve this crisis by spending a massive amount of money on bad securities.
BASILONE: The prospects for legislation seem strong, with lawmakers eager to adjourn this week or next for the elections. The Real News spoke to Nomi Prins.
NOMI PRINS, SENIOR FELLOW AT DEMOS: I think the package is actually not just reckless, it’s insane, for a lot of reasons. One is because of the transfer not just merely of taxpayer money to purchase all these junky, worthless mortgage securities, but because nor Congress nor the Treasury nor the Fed seem to understand just what these securities are comprised with to begin with. The rush that Paulson and Bernanke and bipartisan senators are in to pass some sort of a package is astonishing, given that the rush to create these securities to begin with in such a volume on Wall Street was the reason that we’re in this mess to begin with. The proposal itself not only requests $700 billion worth of money to purchase worthless assets; it has a section in it that no one in Washington seems to have pointed to that says “at one time—at one time we can buy $700 billion worth of assets,” meaning if they get written down to zero, which is very likely because we are talking about them wanting to buy the most junky assets that exist in finance. And they have [inaudible] proposal to buy even more.
BASILONE: So Congress will have to approve this deal.
PRINS: Congress is going to approve this. The irony is they’re not even discussing whether the number is the right number—that’s not even a part of the conversation. Should it be $700 billion? Or should it be $200 billion? Should it be two bucks? Should it be—. There is no conversation even as to why and how that number, which is arbitrary and yet large, has even been determined. There is only a conversation about how quickly the number should be approved. Even with some of the Democrats putting forth statements like, “We will need to tie this to regulation; we will need more oversight; we might want to tie this to excessive golden parachutes for the CEOs that have been ejected from the posts of firms for which they lost billions of dollars,” that’s all conversation, because on the other side is, “We have to do this quickly; we have an urgent need; if we don’t do this, things are going to get worse”; you know, “the whole world is watching,” and all of these statements that imply the urgency to take this random amount of money to buy assets, and somehow that’s going to make everything better.
BASILONE: It sounds like weapons of mass destruction all over again.
PRINS: Precisely. I mean, the difference here is that it will be more expensive in terms of money. It will, fortunately, not be more expensive in terms of lives, but it is certainly being created with the same kind of fabricated hysteria and urgency that propelled the country to make really stupid decisions.
BASILONE: Now, the markets, though, the speculators on the stock market, some call them investors, the people who play the stock market are pretty fickle. Yesterday they got nervous ’cause they didn’t get a blank check fast enough. Do you think that this is going to actually stabilize the markets in any way?
PRINS: This will stabilize the market for, like, a day or two of trading. The reality is this amount of money is not enough to sweep Wall Street clean, even if this were the right solution to increased stability in Wall Street. So it’s like a shot of heroin to an addict. I mean, it’s like a very quick fix. It’s not a solution. So the market or people who invest financial stocks feel good when there’s money coming in, and they feel bad when those effects deteriorate in any way, whether it’s because more money is needed or because it’s happening too slowly. The solution is to gut the structure of Wall Street and actually put in some very strong measures, like the kind that the Glass-Steagall Act in 1933 put in, which is divesting risk from consumer assets. But that is not being discussed at all in Washington, except by Senator Bryan Dorgan, who’s the only one who seems to be mentioning the act and, unfortunately, doesn’t lead the committee.
Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.