Treasury Secretary Henry Paulson spoke after requesting legislation to help relieve banks of their bad assets. Details have yet to emerge, but the BBC speculates that “a government agency . . . would take on the debt” or that “lenders [would be forced] to renegotiate mortgages that homeowners are having difficulty paying.”
The underlying premise appears to be that the problem is with mortgages. This would ignore problems in other forms of credit, which may be even worse. Over a month ago, former Clinton White House economist Nouriel Roubini warned that “The banks are playing all sorts of accounting gimmicks not to recognize [consumer credit losses].”
Roubini said the bailouts of Fannie Mae and Freddie Mac were “privatizing the gains and profits, and socializing the losses, as usual. This is socialism for Wall Street and the rich,” at a huge expense (at least $1 trillion) to the taxpayer. The Wall Street Journal‘s David Reilly wrote today that these “moves, especially proposals for a government vehicle to buy troubled assets before institutions fail, smack of an attempt to arrest price declines,” without solving the underlying problem of “excessive lending at unwise rates that led to unsustainable asset-price inflation, especially in housing.”
So the rich, the only people who apparently matter, the people whom Dan Quayle called the “best people,” are being bailed out. Never mind their role in creating all these exotic “collateralized debt obligations” to enable ever more reckless lending that especially targeted people of color and the poor, accepting as much of their money (in mortgage payments) as they could get, and now leaving them with nothing. Never mind the greed that exported well-paying jobs and left low wage jobs that don’t pay rent in their wake. Never mind the growing gap between rich and poor that has meant the only way that consumers could continue to buoy a sinking economy was by borrowing on the inflated value of their homes. Never mind the greed that paid upper managers hundreds of times the amounts paid ordinary workers. Never mind that taxpayers will be on the hook for trillions of dollars.
Never mind that when ordinary U.S. citizens sought relief, they got “bankruptcy reform,” but when these big institutions need relief, “This country is able to come together and do things quickly when it needs to be done for the good of the American people.”