Feeling Robbed? Wall Street Since the Bailout Shows No Signs of Changing and Washington is Not Forcing a Change
By
Kevin Zeese
So far the U.S. taxpayer has given Wall Street, Fannie Mae/Freddie Mac and the big banks $1.2 trillion. Did anyone hear a thank you? How about an apology for their risky gambling with the world’s economy?
What we have seen has been disconcerting. Big Finance seems is still living high on the hog, spending freely on parties and bonuses while the world’s poor go deeper into poverty and Americans worry about their jobs, retirement, health care and making ends meet.
The first post-bailout outrage was the massive insurance giant AIG. After receiving an $84 billion tax payer bailout they had a party for their executives – the cost $440,000. There was outrage on Capitol Hill including threats to ‘get the money back.’ “They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills,” thundered Rep. Elijah E. Cummings (D-MD). But, instead the Federal Reserve gave them $38 billion more after their party.
While there were lots of comments from the presidential candidates and congressional leadership about not letting CEO’s profit from the bailout, after the bill was signed into law the Wall Street Journal reported that Neel Kashkari, the bailout czar, told a group of Wall Street executives that the restrictions on executive compensation in the bailout bill really don't mean anything. As Dean Baker, co-director of the Center for Economic and Policy Research, wrote “Of course anyone who bothered to look at the bill already knew that the compensation restrictions were meaningless before the bill passed. So why do we only see this reported in the media after the fact?”
The Guardian of the UK reports that people at Wall Street’s top banks are to receive pay deals, in large part discretionary bonuses, totaling more than $70 billion. Bonuses appear to ignore their failed performance, bear no relation to the losses incurred by investors or plunging the global financial system into a crash with their casino-style investments. They estimate a tenth of the bailout will be spent on enormous salaries and bonuses.
It will be difficult for the media and public to find out about executive compensation and the bailout. The Treasury Department is taking the approach of blacking out the compensation section of their contracts, see e.g., the blacked out compensation section of its contract with Bank of New York Mellon. Treasury is also blacking out some of the payment schedules for those they are hiring to work on the bailout. Treasury blacked-out sections of text in the contracts it issued to Bank of New York Mellon and another advisor, the law firm of Simpson Thacher & Bartlett LLP had its hourly rate blacked out. The Bank of New York Mellon will be running the auctions to sell the “toxic assets” and Simpson Thatcher will provide advice on the injection of capital into major banks. Transparency, rather than being enhanced, is an early victim of the bailout.
And, it seems like the bailout process is being privatized with some of the same people who got us into this mess being hired to get us out of it. Bloomberg reports that Treasury Secretary Henry Paulson is hiring as many as 10 asset-management firms to join the lawyers and bankers he is recruiting to implement the government's new $700 billion bank-rescue program.
Rather than bailing out the mortgage markets, Paulsen has been providing cash to big banks -- $125 billion of the first $250 billion. The EconomicPolicyJournal reports that Citigroup and JPMorgan Chase would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same amount for its purchase of Merrill Lynch.
What do Americans get in return? The deals Paulsen is making with his former Wall Street colleagues do not ask for much. Paulsen is evidently no Warren Buffet when it comes to negotiating deals but maybe that is because Paulsen is not using his own money but the taxpayers. While Buffett received a 10% dividend on his $5 billion investment in Goldman Sachs, Paulsen only got 5% for his. While the UK was able to get a seat at the board table for their injection of cash into banks, Paulsen didn’t. Nor did Paulsen demand any more stringent banking regulations or greater transparency going forward.
The Chairman of the Federal Deposit Insurance Corporation, Sheila Bair told The Wall Street Journal she was frustrated at the failure of the bailout to provide direct help to struggling homeowners. Mortgage defaults are “what's causing the distress at the institution level,” Bair says, “so why not tackle the borrower problem?” Maybe Paulsen is not directly focusing on the mortgage problems because bad mortgages are not the problem. Maybe it is the gigantic derivative bets that have been made? Derivatives are more than an unregulated $500 trillion market – ten times bigger than the world economy.
But, the banking class has looked to shift the blame. Perhaps most obnoxious is the effort to blame the poor and working class for the finance crisis. They point to the Community Reinvestment Act – designed to encourage banks to make efforts to loan to minority applicants, who they had not loaned to in the past. Now, they become the scapegoat for the wealthy bankers – rather than pointing to their own gambling on risky investments and unregulated derivatives.
In fact, the CRA does not require banks to make loans that are unsafe or unprofitable – the law states that CRA lending must be done consistent with safe and sound banking practices. Loans that qualify for CRA credit are often prime loans with fixed rates and consequently, have good performance records. Banks that have made mortgages to low- and moderate-income borrowers to fulfill their CRA obligations have found low default rates and have fewer foreclosures. In fact, non-CRA lenders made 84.3% of high-cost loans in the 15 largest metropolitan areas. In addition, only a few of the top 25 subprime lenders in 2006 were institutions with CRA obligations and the vast majority of the top 20 producers of risky interest-only and option ARM loans were not covered by CRA. In fact, the CRA was passed in 1977 and the rapid growth in subprime lending occurred more than two decades later from 2001-2006 alone. No major changes to CRA were enacted during this time.
This class warfare by the rich against the poor and working class is ugly. During the time of paper profits from derivatives, the housing bubble and the internet bubble those in the middle class and below have seen stagnate and shrinking wages. The percentage of poor Americans who are living in severe poverty has reached a 32-year high, millions of working Americans are falling closer to the poverty line, nearly 16 million Americans are living in deep or severe poverty. The number of severely poor Americans grew by 26 percent from 2000 to 2005. During this time the extreme wealthy have hoarded a larger and larger percentage of the nation’s wealth. Now the top 1% has wealth equal to the bottom 95% combined.
In the midst of the finance bailout, the Congress showed its lack of loyalty to the American worker when it gave up on legislation to provide health care to the September 11, 2001 recovery workers. The legislation would have provided long-term care to these workers at a cost of about $5 billion as well as provided funding for the Victim’s Compensation Fund at a cost of $6 billion. A drop in the bucket compared to the more than $1 trillion provided so far to the top of the economic pyramid.
If you are angry and ripped-off – turn it into productive action. The time is now.
Round II of the bailout of the U.S. economy is moving forward. The congressional leadership, Sen. Obama, President Bush and Paul Bernanke all support an economic stimulus package. The Congress will come back after the election to pass it. The contours of that stimulus are not defined, so this is a good time to tell your Member of Congress what you want in the next American economy. Here are some suggestions:
-
Democratize the economy. All Americans deserve a stake in the economy because, as John McCain says, workers are the foundation of the economy. A democratized economy is a real ownership society. This includes more employees having shared ownership in the businesses they work for, shareholders having a real say in the priorities and direction of the corporations they invest in and corporate welfare being transformed into taxpayers having an equity share in the companies that receive tax benefits. It also includes allowing workers to organize so their collective voice can balance the power of capital. For an economy to be more democratized it requires greater transparency than currently exists.
-
Equity in the economy. This includes a tax system that taxes wealth more and labor less e.g. a Tobin tax on the purchase of stocks, bonds and derivatives, tax on super wealth, tax on war profits and methods of sharing the wealth. One example, with green energy there will be a great deal of distributed energy production down to communities, homes and cars. Individuals and communities should profit from the production of energy. Perhaps there are ways that the Alaska model of returning a percentage of oil profits can be applied to the new economy, e.g. in Denmark communities with wind farms share the profit of those farms.
-
A sustainable economy. The world is in the midst of the end of the fossil fuel economy and the development of a clean, sustainable energy economy. The infrastructure of this new economy will require major investment e.g., in power grids that transport wind, large-scale solar and ocean energy; in community-based solar energy plants; in parking lots where cars can provide energy to the grid while parked; in mass transit within cities and regional rapid transit. A sustainable economy also requires a more locally-oriented economy that does not rely on shipping across the world to feed its inhabitants and where money re-circulates in the economy through local businesses rather than national chains which take the profit back to the home office.
The contours of the new economy are going to begin with the next round of economic recovery legislation, so the time to act is now.
If we want a more transparent, democratic, equitable and sustainable economy it is only going to happen if we advocate for it. Talk about it with your neighbors, in your community, with family and friends. Urge people to get into a dialogue with their political representatives. This is a time where dramatic change is going to happen. The question is whether that change will benefit the top of the pyramid or the rest of the pyramid? This is an opportunity to change the economy in the direction you want. Take the opportunity – get involved and become even more active.
Time
to Create the Economy We Want
Multiple
Crisis in the U.S. Presents an Opportunity for Real Change
By
Kevin Zeese
The rage over the bailout of Wall Street is still boiling. In fact, the boil is just beginning. Last week the bailed out massive insurance giant AIG had a party for their executives – the bill $440,000 – this, after an $84 billion tax payer bailout. After the party the Federal Reserve gave them $38 billion more!
It is good the population is angry because we are at the beginning of this financial crisis not at the end. And, if the people get angry enough and organized enough this crisis will become the opportunity for a paradigm shift to a democratized economy built on new, clean energy sources.
During the bailout debate 50,000 letters were sent to Congress and the media through my organization’s site, the Campaign for Fresh Air and Clean Politics (www.FreshAirCleanPolitics.net). And, we were one among many. This is just the beginning of our effort. We are now in the process of thinking through our economic agenda and seeking input from people on that topic. You can support these efforts by responding to a brief survey and donating to our efforts.
The passage of the bailout legislation is not going to solve the economic crisis the United States is facing. Even the day the legislation passed Members of Congress were expressing concern it would not be enough and already there is talk in DC about Congress coming back to pass an economic stimulus package.
Since passage of the bailout concerns have grown. The stock market has been in decline for seven days since approval of the bailout. The Dow has lost 5,585 points, or 39 percent, since closing at 14,198 a year ago. The U.S. has lost $2.5 trillion in wealth measured on the stock market over the last seven trading sessions, and $8.4 trillion since its peak only one year ago.
But, the Dow is only one measure and not the best measure of how the economy is doing:
- Last week we saw the biggest reductions in payrolls in five years with unemployment rising and no net job growth in the private sector for almost a year.
- Inflation is at its highest level in 17 years and likely to get worse as more money is pumped into the economy.
- More than 800 federally insured finance institutions failed in the last three years and up to 100 more bank failures are predicted in the next year.
- The national debt has increased by more than 65 percent, to $10 trillion in the last eight years (not counting the debts of Freddie Mac and Fannie Mae which the government is responsible for).
- The U.S. is fighting two long (and unwinnable) war quagmires at once, the price tag of Iraq alone will exceed $3 trillion. The Congress just approved $700 billion in defense spending for next year.
The U.S. is on the verge of a revolutionary paradigm shift as not only is the finance system faltering but the old energy economy of fossil fuels has become too expensive and dangerous due to primarily to its carbon emissions. The wealth divide where the wealthiest 400 people have as much wealth of the bottom 195 million Americans has become obscene and apparent to all. The infrastructure has been long neglected and demands multi-trillions of investment. Industrial production has left America for cheaper labor and the stock market has transformed from an investor in production to a casino betting on derivatives and other wealth instruments. Further, people have lost faith in the major institutions in America - the presidency and Congress are very unpopular, as are the Democrats and Republicans. The corporations and media are no longer trusted.
While this is a dismal list it is also a time of great opportunity. Change that has been resisted for decades is going to be forced upon elected officials and if the people show the type of commitment we saw during the bailout - we will be able to create an economy that serves us, rather than just the wealthiest. Some of the changes we intend to advocate for include:
- Democratizing the economy. This means more employee-owned businesses and real shareholder rights in setting the direction and profiting from the companies they invest in.
- Equity stake rather than corporate welfare. Each year the government provides more than $100 billion in corporate welfare that could be turned into an investment by the people. Every taxpayer should share ownership and profits of corporations that accept tax dollars, tax breaks and other giveaways.
- A new clean energy economy that is fossil fuel and nuclear free. The new energy economy's foundation will be distributed energy, i.e. produced at the local level where businesses, homes, cars and communities create energy and use it efficiently. It will provide an opportunity to share the wealth created by energy. The green economy will create hundreds of thousands of new jobs.
- A rebuilt infrastructure that is consistent with a new energy economy. This will need to include an end to subsidizing sprawl by encouraging development around new mass transit centers rather than new roads. The infrastructure will be built to move wind energy across the U.S. and put in place large solar installations, geothermal $2.5 trillion over the last seven trading sessions, and $8.4 trillion since hitting an all-time high one year ago Thursday. and ocean energy sources. These are just a few among many infrastructure upgrades that will be essential and create jobs that cannot be sent overseas.
- A re-ordered tax structure that reduces the tax burden on working Americans while putting in place taxes on the purchase of stocks, bonds and derivatives, as well as increased taxes for the wealthiest Americans.
The issue is not whether these changes are technically feasible or whether the funds are available (as we saw with the bailout, if funds are needed they are found) - the roadblock is political will. On this front, Americans are more engaged than ever in taking action on the economy. During the battle of the bailout, Congress was forced to shut down their email system because it was overwhelmed with letters of opposition. People are finding uncommon allies as concerns cross partisan lines and the political spectrum. People now know they can make a difference.
We need your help to chart the next steps in this effort. I hope you will respond to a brief survey so we have your thoughts. It includes room for you to send broad comments on where you think economic advocacy should be moving.
If you took action to stop and improve the bailout, thank you for doing so. Together, we did make a difference. I hope you support our efforts by making a contribution of $5 or more today. We need rev up our advocacy and organizing efforts so as the multi-pronged crisis America faces evolves the people can push elected officials to act in our interests rather than the interests of multi-nation mega business.
Bailout Update: Senate Passes Bailout, House Still Unclear
Progressives Push for Bankruptcy Reform and Economic Stimulus
By Kevin Zeese
See Below for the
Action Step You Should Take Today: The Battle of the Bailout is Not
Yet Over
The
Senate voted 75-25 in favor of the bailout, with support from both
sides of the aisle, essentially an even vote between Republicans and
Democrats in the Senate. See
vote count
. The Senate included a host of tax breaks for
businesses and families in order to make the bill more popular.
Senator
Bernie Sanders and Senator Russ Feingold used their no votes to
put out good statements opposing the bailout. Sanders has a
comprehensive critique he said: “If a bailout is needed, if
taxpayer money must be placed at risk, if we are going to bail out
Wall Street, it should be those people who have caused the problem,
those people who have benefited from President Bush's tax breaks for
millionaires and billionaires, those people who have taken advantage
of deregulation who should pick up the tab, not ordinary working
people.” Sanders had urged a modest tax on the wealthiest
Americans to pay for the bailout; a five-year, 10 percent
surtax on families with incomes of more than $1 million
year and individuals earning over $500,000 to raise $300 billion to
help bankroll the bailout. Senators, however, set aside the
amendment on a voice vote. Some highlights of Sanders speech:
“This
bill does not effectively address the issue of what the taxpayers of
our country will actually own after they invest hundreds of billions
of dollars in toxic assets. This bill does not effectively address
the issue of oversight because the oversight board members have all
been hand picked by the Bush administration. This bill does not
effectively deal with the issue of foreclosures and addressing that
very serious issue, which is impacting millions of low- and
moderate-income Americans in the aggressive, effective way that we
should be. This bill does not effectively deal with the issue of
executive compensation and golden parachutes. Under this bill, the
CEOs and the Wall Street insiders will still, with a little bit of
imagination, continue to make out like bandits.”
"This
bill does not deal with the absurdity of having the fox guarding the
hen house. Maybe I'm the only person in America who thinks so, but I
have a hard time understanding why we are giving $700 billion to the
Secretary of the Treasury, the former CEO of Goldman Sachs, who along
with other financial institutions, actually got us into this problem.
Now, maybe I'm the only person in America who thinks that's a little
bit weird, but that is what I think.
"This bill does not
address the major economic crisis we face: growing unemployment, low
wages, the need to create decent-paying jobs, rebuilding our
infrastructure and moving us to energy efficiency and sustainable
energy."
*
* *
"The
American people are bitter. They are angry, and they are confused.
Over the last seven and a half year, since George W. Bush has been
President, 6 million Americans have slipped out of the middle class
and are in poverty, and today working families are lining up at
emergency food shelves in order to get the food they need to feed
their families. Since President Bush has been in office, median
family income for working-age families has declined by over $2,000.
More than seven million Americans have lost their health insurance.
Over four million have lost their pensions. Consumer debt has more
than doubled. And foreclosures are the highest on record. Meanwhile,
the cost of energy, food, health care, college and other basic
necessities has soared.
"While the middle class has
declined under President Bush's reckless economic policies, the
people on top have never had it so good. For the first seven years of
Bush's tenure, the wealthiest 400 individuals in our country saw a
$670 billion increase in their wealth, and at the end of 2007 owned
over $1.5 trillion in wealth. That is just 400 families, a $670
billion increase in wealth since Bush has been in office.
"In
our country today, we have the most unequal distribution of income
and wealth of any major country on earth, with the top 1 percent
earning more income than the bottom 50 percent and the top 1 percent
owning more wealth than the bottom 90 percent. We are living at
a time when we have seen a massive transfer of wealth from the
middle class to the very wealthiest people in this country, when,
among others, CEOs of Wall Street firms received unbelievable amounts
in bonuses, including $39 billion in bonuses in the year 2007 alone
for just the five major investment houses."
Senator
Sanders full speech is available at:
http://www.sanders.senate.gov/news/record.cfm?id=303980.
Now
action moves to the House of Representatives where the leadership is
trying to figure our how to deal with the Senate bill.
Progressives who oppose the bailout are also determining their
response. There are two issues being urged by progressives:
bankruptcy reform and economic stimulus.
Bankruptcy
reform is the least costly and most sensible step that could be taken
by the Congress. It will cost the taxpayer nothing and will prevent
a massive redistribution of wealth from working class Americans to
the wealthiest bank owners. The goal is to allow a judge to
renegotiate the mortgage of the homeowner so they can afford it and
keep their home. This has not been voted on in either the House or
Senate because the leadership has kept it out of the bills. It is
being kept out because the banks oppose it. They would prefer to
take the homes from homeowners rather than take their payments on a
slower basis. If the bankruptcy provision were included it would
ameliorate the subprime mortgage problem and demonstrate that
homeowners are not to blame and the real problems in the finance
industry are much bigger.
Some
are trying to include the economic stimulus package being considered
by the House as part of the bailout. This effort, being led by Rep.
Jim McDermott, is facing an uphill battle. Majority Leader Hoyer
says it is unlikely to be included blaming Republican opposition.
Once again, the Democratic leadership is not leading but using
Republican opposition to stifle sensible economic policy.
It
is likely the bailout will move to the House Floor without any
amendments being allowed. The vote is expected tomorrow.
Today
people should be making calls to Congress urging them to slow down
and consider this massive expenditure carefully. Points to make:
-
Do
not let make the tax payers pay to clean up Wall Street’s
mess.
-
Make
sure that CEO’s do not benefit from the bailout.
-
Include
a bankruptcy provision to protect homeowners.
-
We
need a broader economic stimulus that should be included in the
bill.
The
bailout has shown Americans two things: first the money is available
to fix the problems faced in the United States. Here we are two
weeks into a “crisis” and the Congress is finding $700
billion to save Wall Street. Second, if the people respond to an
organized fashion we can make a difference. The people wrote, called
and emailed their representatives and the steamroll slowed. The bill
was improved. And, frankly, only a small percentage of Americans did
anything – and most only did something that took a few minutes
– a click and send email or a telephone call. Imagine if
Americans really demanded what they wanted – a clean energy
economy, revitalized cities, rebuilt infrastructure, health care for
all. These are all items that Americans know are needed but we are
not demanding with the ferocity they deserve. The bailout shows that
even with the power of corporate dollars against the people, the
people can prevail. The money is available what is lacking is
political pressure from the people.
It
is important to recognize our power because it can become a fever
than infects Americans. We all know the country is on the wrong
course in a number of ways, now we know we can make a difference.
This is a powerful lesson we must share with our fellow Americans so
that we have the courage to create the future we want.
Take Action NOW:
Call Congress 800-473-6711. Call your representative, Speaker
Pelosi and Majority Leader Hoyer to demand that the bailout
include protection for homeowners through bankruptcy reform –
this will cost the taxpayers nothing; and demand that the bailout
include an economic stimulus that builds the economy from the bottom
up. We need a strong foundation not a trickle down economy.
Help for Main Street and Reform for Wall Street
On
Monday, Sept. 29, 2008, Congress stood up and said “No”
to President Bush and Treasury Secretary Paulson’s blank check
for Wall Street. We acknowledge the members of Congress who pushed
for substantial changes to the legislation, including cutting in half
the Administration’s initial $700 billion request and requiring
Congressional review for future payments.
While
action must be taken to address the crisis in the financial markets,
most Americans detest the idea that citizens should pay for the
excesses of Wall Street while the needs of Main Street are neglected.
Therefore, we call on Congress to address the concerns of ordinary
American families and bring comprehensive financial reform to solve
our current economic crisis.
We
are united in urging that Congress develop and pass stronger
legislation that meets the following principles:
Help for Main Street
Bankruptcy
Protection
Legislation
must provide help for homeowners struggling to stay in their homes.
This can be done by revising the bankruptcy code back to its pre-1991
wording. Millions of families are being victimized by this
foreclosure crisis – many who were misled by predatory lenders
into taking mortgages that they didn’t understand and couldn’t
afford. This bill must grant authority for bankruptcy judges to
restructure mortgages and allow government to work with loan
servicers on new mortgage terms, thereby providing stability and
security for local communities and the economy as a whole. Bankruptcy
protection is a win-win scenario as this provision will not cost one
dollar to taxpayers.
A
Strong Economic Recovery Package
Congress
must pass a strong economic recovery package that will provide jobs
for the workers who have lost their jobs and invest in local
communities. The legislation must include an extension of
unemployment insurance, investments to rebuild and strengthen public
infrastructure, assistance to states to avoid deep cuts in education
and health care and temporary food stamp increases to aid those who
are hardest hit by the economic downturn. We believe a strong
economic recovery package is vital to get the real economy moving and
put people back to work.
Reform of Wall
Street
Taxpayer
Protection
The
public’s massive amount of investment in our financial
institutions must be vigorously protected. Tough, independent
oversight, transparency and an assurance of repayment from the
financial service companies must be mandatory. Wall Street
speculators must pay their fair share for this bailout. The public
must receive $1.25 in equity in exchange for every $1.00 in bad
assets it acquires. Future profits of participating companies must
first be returned to taxpayers before any other expenditures are
undertaken.
Limitations
on Executive Compensation
Tax
dollars should be restricted from funding excessive executive
compensation and golden parachutes. Strict limits on compensation and
severance packages for senior executives must be enacted on any
institution receiving taxpayer-funded assistance.
Rebuilding Accountability
and Trust
The grassroots blowback against
the Bush Administration’s proposed Wall Street bailout is rooted in
deep distrust. Americans recognize the need to act on our current crisis
but detest the idea that ordinary taxpayers should bear the brunt of
bailing out the kingpins of Wall Street.
The following program, if incorporated
into the bailout, could far better address our current problem’s root
causes and restore trust and confidence in our economic system.
1. A Stimulus For
Main Street
The debate over the bailout
has so far concentrated on the $700 billion purchase of “troubled
assets” proposed by Treasury Secretary Henry Paulson. A real “bailout”
would target the troubled households of working American families. A
$200 billion “Main Street Stimulus Package” could bolster the real
economy and those left vulnerable by the subprime mortgage meltdown.
This package should include:
• A $130 billion annual investment
in renewable energy to stimulate good jobs anchored in local economies
and reduce our dependency on oil.
• A $50 billion outlay to
help keep people in foreclosed homes through refinancing and creating
new homeownership and housing opportunities.
• A $20 billion aid package
to states to address the squeeze on state and local government services
that declining tax revenues are now forcing.
See the terms of the $56.2
billion proposed Economic Recovery Package proposed by
Senators Reid and Byrd. Reid/Byrd Economic
Recovery Act of 2008
2. Make Wall Street
Speculators Pay for the Bailout
The lawmakers who negotiated
the defeated bailout appear to have assumed that the federal government
will simply borrow more money to foot the bailout bill. But this rush
to borrowing merely shifts the bailout burden onto the backs of future
taxpayers.
Congress needs to change course
— and develop a “pay as we go” plan that makes Wall Street pay.
The lion’s share of bailout funding should come from the high-finance
gamblers and the wealthy CEOs who have so profited from our casino economy.
The Institute for Policy Studies
has identified $900 billion in dollars in revenue to pay for a Main
Street stimulus and Wall Street bailout. A full text of this appears
at: http://www.ipsdc.org/articles/740.
A fair and responsible plan
would include:
• A securities transaction
tax: $100 billion
A fair plan to pay for the
bailout should include a modest financial transactions tax on the buying
and selling of stock and other financial products. A penny on every
$4 invested would generate $100 billion a year. Other European countries
already tax stock transactions, and these transaction taxes effectively
discourage speculation.
• A corporate minimum
income tax: $60 billion
In August, the Government Accountability
Office reported that two-thirds of U.S. corporations paid no income
taxes between 1998 and 2005. These corporations paid nothing toward
our shared expenses of defense, environmental protection, public health,
and education. Ordinary taxpayers should not be left holding this bag.
A minimum corporate income tax should contribute toward the bailout.
• A
‘disgorgement’ recovery from profligate CEOs: $40 billion
Until several weeks ago, top
executives were collecting massive paychecks while they told the rest
of us that “everything is fine.” CEOs gorged themselves and have
now taken the money and run. The four biggest investment banks on Wall
Street shelled out $30 billion in bonuses last year. One of them, Lehman
Brothers, has just gone under. Another, Bear Stearns, was bailed out
earlier this year. To help pay for recovery, we should seek the payback
of executive compensation inappropriately extracted in the years before
the Wall Street meltdown.
• An end to overseas corporate
tax havens: $100 billion
Congress should close down
corporate tax havens that allow corporations to game the system and
cut their taxes, sometimes to zero. This step would generate $100 billion
from profitable companies that have paid no taxes over the last decade.
• The elimination of subsidies
for excessive CEO pay: $20 billion
As taxpayers, we subsidize
excessive CEO pay, through a host of tax loopholes, to the tune of $20
billion a year. Congress should close these loopholes, including the
accounting gimmicks that permit companies to report one set of earnings
to shareholders and another lower number to Uncle Sam.
3. Shut Down the
casino: Assert Real Oversight of Financial Markets
The U.S. public would feel
more positively about government intervention if this intervention were
clearly aimed at addressing the root causes of the financial crisis.
This crisis has evolved from a convergence of disasters:
• The tolerance by the Federal
Reserve and other government overseers of a dangerous housing bubble.
• The rapid expansion of
unregulated financial institutions and instruments, everything from
hedge funds to credit default swaps.
• The failure of government
oversight of existing financial institutions
To shut down the casino, the
federal government should:
• Direct the Federal Reserve
to intervene to prevent present and future asset bubbles.
• Extend financial reserve
requirements to new security categories such as derivatives and place
strict limits on leverage for all regulated financial institutions.
Tradable instruments, like credit default swaps, should be standardized
and traded on regular exchanges.
• Regulate the packaging
of loans so they can be evaluated, rated, and priced rationally.
• Regulate hedge funds and
private equity funds in a way comparable to banks
• Move against predatory
home mortgage lending.
4. Limit excessive CEO pay
and prohibit bailout profiteering
Many Americans oppose the bailout
because they believe that Wall Street CEOs and fund managers will be
financially rewarded for their reckless behavior. Americans also fear
that Wall Street profiteers will make money from the bailout, like the
billions that were made by the private firms that “fixed” the Savings
and Loan bailout.
Placing limits on CEO pay would
remove the key incentive that has driven the short-term “casino”
mentality in Corporate America. The defeated bailout bill left this
incentive largely in place, with a provision that gave the determination
of what’s “excessive” in executive pay to Treasury Secretary Paulson,
a former Wall Street wheeler-dealer who made hundreds of millions of
dollars as an investment bank CEO.
Several members of Congress
have proposed fixed executive pay limits for the bailout. Senators John McCain (D-AZ) and Diane Feinstein (D-CA.), for instance, have both made
offhand comments calling for capping compensation for bailed-out executives
at the current compensation level of the U.S. President: $400,000.
The Institute
for Policy Studies favors a lid on CEO pay
set at 25 times the pay of a bailed-out company’s lowest-paid worker.
The current top federal paycheck — the President’s $400,000 annual
compensation — represents about 25 times the pay of the federal government’s
lowest-paid employee.
The most respected business
thinker of the 20th century, Peter Drucker, considered the 25-to-1 ratio
to be the appropriate standard for the private sector as well. Pay gaps
too wide, management experts like Drucker believe, undermine enterprise
effectiveness.
But executive pay controls
need to go beyond the ranks of “bailed-out” firms. Companies hired
to manage the bailout need to be controlled as well. Private firms,
as news reports (New York Times, “Big
Financiers Start Lobbying for Wider Aid”)
indicate, are already lining up to cash in cash in on the bailout. We
need strict pay controls and conflict-of-interest oversight to prevent
this profiteering at taxpayer’s expense.
Authors Sarah Anderson,
John Cavanagh, Chuck Collins, Dedrick Muhammad, and Sam Pizzigati, Working
Group on Extreme Inequality (www.extremeinequality.org)
Endorsing
Organizations:
AfterDowningStreet.org
Backbone Campaign
Code Pink
Democrats.com
Institute for Policy Studies
Progressive Democrats of America
Campaign for Fresh Air &
Clean Politics
