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Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

Post readers may ask that question given that the Post told them that: “Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives.”

The rest of the article explains how the bailout legislation, as approved by Congress, is not likely to impose any serious limits on executive pay. So, Congress was apparently unable to do what it wanted.

This is striking because most members of Congress are not morons. Congress is usually capable of passing legislation that does what it wants. For example, when they have wanted to fund the war in Iraq, they have been able to pass legislation that actually funds the war in Iraq. When they wanted to cut taxes for the wealthy, Congress was able to pass legislation that actually cut taxes on the wealthy. Why did Congress find it so difficult to pass legislation to limit executive compensation on Wall Street, if that is what it really wanted to do?

Let me suggest an alternative hypothesis. Perhaps Congress really did not want to cut executive compensation on Wall Street. After all, word has it that members of Congress gets lots of campaign contributions from very high paid Wall Street executives.

Of course, giving taxpayer dollars to the richest people in the country is not very popular with ordinary taxpayers. So, it might be in the interest of members of Congress to appear to be trying to rein in executive compensation on Wall Street, even if this is not their real intention. In other words, the restrictions of executive compensation put in the bailout bill were just a charade for the kids.

Is my explanation correct? I have no idea, but of course the Post has no idea either of what Congress really “wanted,” so why is it trying to tell readers what Congress wanted in the very first sentence of a front page news article.

Mortgages may be underpriced today, but they retain some value on banks’ books. So rather than purchasing mortgages (a capital-neutral transaction), Paulson could buy bank stock, infusing banks with new capital on top of their mortgages. That would exponentially increase lending capacity, prevent taxpayers from buying toxic assets, give the public a share of future profits, and grant regulators ownership leverage to restructure bank management.

This is where Paulson’s personal proclivities come in.

A crony communist looking to socialize risk and privatize gain would consider these options and choose to buy mortgages – that is, choose to ignore the credit crisis, reward discredited executives and permit banks to keep any subsequent profits – all while inhibiting a potential government-mandated housecleaning of Wall Street. Indeed, the Financial Times’ Wolfgang Munchau says Paulson’s mortgage-buying program is driven by “a wish to benefit the investment banks he once chaired, and which stand to gain handsomely from such a package.”

A businessman, by contrast, would limit taxpayers’ exposure, give us a stake in future gains and demand management control. He would, in short, treat taxpayers like Warren Buffett treats his Berkshire Hathaway shareholders when buying banks with their money.

This is how Sweden successfully confronted its banking crisis in 1992, and how England is addressing its own meltdown today. In fact, world leaders are citing our crony communism as a cautionary tale. “This is not the American plan,” said British Prime Minister Gordon Brown in announcing his bank rescue. “We will have a stake in the banks – we are not simply giving money.”

The bailout bill’s failure to make this course of action mandatory should have killed the legislation in Congress. But banking CEOs and their lobbyists turned “should have” into “didn’t.” They love crony communism and hate government ownership stakes because, as financial analyst Luigi Zingales says, “Nobody likes to pay for their own mistakes – it is much better to have the taxpayers pay.”

Considering the opposition, then, it is a miracle any ownership stake language slipped into law. Whether Paulson now uses that language will signal how deep Washington corruption runs.

By Leo W. Gerard
International President

Republicans in the House contend that critical words by Speaker Nancy Pelosi compelled them to vote against the initial $700 billion Wall Street bailout bill that their GOP President had asserted was essential to save the country from certain economic doom.
But, really, they were pressured by something far less ethereal than Pelosi’s commentary, something far more grassroots: livid constituents calling and e-mailing so fast and furious — with furious being the operative word — that they nearly shut down networks.
It was an uprising. It showed that under the right set of circumstances –  like  impending balloting on their re-election — they would respond to public outcry. That occurred just as a filmmaker Stuart Townsend’s new movie, “Battle in Seattle” debuted around the country, highlighting an uprising that changed the course of global events.
“Battle in Seattle” recounts the massive protests in 1999 that shut down the World Trade Organization talks scheduled to occur in that Washington city, the first time the ministers were to meet in the U.S. The movie depicts the diverse group of protestors — idealist college kids, environmentalists, endangered species activists, and trade unionists concerned about so-called free trade — who converged on the city for five days of mostly peaceful demonstrations only to be met by tear gas, rubber bullets, police batons and concussion bombs.
Stopping these talks forced the all-powerful WTO to recognize the deep layers of opposition to its secretive actions that created trade deals disregarding the human condition, the environment and endangered species while favoring global corporations and large nations. And, in the case of the U.S., these agreements could circumvent the will of Congress.

Marginalized nations empowered

In addition, the protest and shutdown empowered small, marginalized nations to stand up and object to the process that enabled global corporations to profiteer from their national resources as cheap raw materials and their people as cheap labor. This recovery of rights by small nations contributed to the disintegration of the Doha Round of WTO talks that broke off in July without resolution.
Mark Engler, a senior analyst with Foreign Policy in Focus and author of “How to Rule the World: The Coming Battle Over the Global Economy,” wrote about it in an essay entitled, “The Impact of the Battle in Seattle.” He describes the insurrection in Seattle by ministers for some small countries and quotes Sir Shridath Ramphal, chief negotiator for the Caribbean: “This should not be a game about enhancing corporate profits. This should not be a time when big countries, strong countries, the world’s wealthiest countries, are setting about a process designed to enrich themselves.”
Engler goes on to say:

“Given that less powerful countries had typically been bullied into compliance at trade ministerials, this was highly unusual stuff. Yet it would become increasingly normal. Seattle launched a series of setbacks for the WTO and, to this day, the institution has yet to recover. Efforts to expand the reach of the WTO have repeatedly failed.”

The two events – the collective uprising in Seattle that shut down the WTO talks and the angry public uprising that prompted the initial House vote rejecting the bailout bill — share another important connection.
In both cases, the protestors believed the governing agency was kowtowing to corporate interests at the expense of individuals. In Seattle, the protestors felt that the WTO would make any deal to increase trade between nations for the profit and pleasure of global corporations, no matter what indigenous people, fragile eco-system, endangered Queen Alexandra’s Birdwing Butterfly or threatened Knysna Banana Frog stood in the way. The wealth created by this increased commerce was supposed to create economic growth and stability within nations and trickle down to the poor. But, as small nations in particular experienced, that didn’t seem to occur.  The rich corporations and rich countries just got richer – at the expense of the small.

Angry constituents called

Similarly, with the initial House vote on the bailout bill, a thin majority of U.S. representatives opposed it after angry constituents called demanding to know why their tax dollars should be used to salvage giant banks that would never forgive a depositor an overdraft, that paid executives obscene salaries while the rest of America increasingly got layoff notices, and that had taken the risks that resulted in pulling the American economy down.
At the same time, these taxpayers knew the federal government had tightened bankruptcy regulations to make it more difficult for citizens like them to get a bailout. They could recite the Reagan Republican economic mantra that government should deregulate so that corporations could do whatever they wanted, and, eventually, the resulting massive profits were supposed to trickle down to the great unwashed. It had never worked for the American middle class as corporations shipped jobs oversees to exploit labor there. And now a new Republican president was telling them to begin paying for a reverse philosophy –  their tax dollars would trickle up into the pockets of reckless corporations. This time, the public revolted.
Again, there’s a connection between Seattle and Washington, D.C.  Engler writes, “Privatization, deregulation and corporate market access have failed to reduce inequality or create sustained growth. . .”  He finishes that sentence with “in developing countries” because he is writing about the WTO. But if it changes to: “Privatization, deregulation and corporate market access have failed to reduce inequality or create sustained growth. . .in the United States,” it remains true.
Those who feel defeated by the events on Wall Street and in Washington or feel depressed by the prospect that nothing they do can change that, should go take a dose of “Battle in Seattle.” It’s a tonic because it shows people still have power.