So this will be only one of a billion articles on the jacked up bailout proposal. I will try not to dwell on the complexities of the politics behind it. Let's put some data out on the table first. Major banks are failing left and right--Lehman Brothers, Bear Stearns, Fannie Mae, Freddie Mac, IndyMac, Washington Mutual, AIG, Wachovia. There are billions and billions of securitized loans that have gone bad that need to be "written off". Buyers of these SIVs (structured investment vehicles) started freaking out that a small percentage of home owners were defaulting, because that meant they would not be making money from those loans. That fear was then displaced to other homeowners by association, such that the fear they would make little or no money from their purchace of SIVs was then exaggerated even more. And fearful investors do what you expect they would do. They tried to get their money back. They made a run on the investment banks that held these SIVs, trying to get as much of their money back. The problem is that the banks did not have enough "cash" on hand to cover the run by investors. (Think George Bailey in It's A Wonderful Life) So these SIVs then have to be "written down" and a company deficit established. And because these banks have accumulated so many of these SIVs over the years, a loss of a small percent in value is magnified a billionfold. That kind of loss can destroy a bank.
So what is the government to do? According to Secretary of the Treasury Henry Paulson, the answer is to throw lots and lots of money at the problem. After all, you only need to create an illusion of trust in order to get the public to spend and invest its money instead of stuffing it under the mattress. Creating actual trust would be even better, but that is not going to happen for at least the next five or ten years. It is this crisis of distrust that lead to the market crisis. People don't trust the banks anymore. And can you blame them? The banks took on excessive risks with your money and didn't tell you. There has to be some semblance of trust between the people and the banks if the market will recover. And the Secretary of the Treasury thinks the answer is to give the banks more money to piss down the drain. If I couldn't trust the banks to do due diligence on SIVs and the contents of the SIVs, why would I trust the banks will responsibly use $700 billion of federal money? And if people still haven't forgotten the stories about the $400 government toilet seat, why would anyone believe that $700 billion will actually go towards fixing the economy, instead of only $100 billion after all the pork projects and overhead costs are said and done?
Of all the bills that Congress has passed over the history of this nation, I would be so bold as to say that in the last 50 years no bills have been passed that did not have some pork or unrelated stipulation attached to it. This is why so many people are up in arms about the bailout. Not only does it fail to adequately punish the CEOs and executives that created the market mess, it wastes even more money in order to earmark a lot of money to bail out the banks. This is why it is so difficult to find a copy of the bailout bill for the public. If the public knew how senators and representatives added unnecessary provisions to the bill as a condition for their support, there would be an overwhelming number of upsets in the next round of Congressional elections. People worry so much about lobbyists influencing our politicians when its clear the politicians themselves have lost their way.
Without accountability a problem will happen again and again. As long as the executives are not punished for buying SIVs that they knew nothing about, or for not paying attention to what their buyers were buying, it will happen again. And again. And again. You have CEOs leaving failed banks with multimillion dollar golden parachutes. You have politicians brokering billion dollar bills under the guise of emergency and public good but adding in side deals to skim millions from the American public. And we are powerless to stop it. Why? Because the system needs to be reset. We don't need an election every few years where nubes campaign against the incumbents. That never alters the composition of Congress. What we need is a law that prohibits any Congressman (or Congresswoman for you females that care to be associated with politicians these days) from serving more than two terms. We do that for the executive branch, and we should do that for the legislative branch. That may allow less lobbyist influence, more sympathy for the constituents, and less money and power grubbing.