NYT: An Inadequate Case for the Bailout

[babylonsister]

http://www.nytimes.com/2008/09/24/opinion/24wed1.html?ref=opinion

An Inadequate Case for the Bailout

Published: September 23, 2008


Under skeptical questioning in the Senate Banking Committee on Tuesday, Treasury Secretary Henry Paulson and the Federal Reserve chairman, Ben Bernanke, gave no ground in defense of their $700 billion proposal to bail out the financial system.

They also gave little reason to believe that their proposal would protect taxpayers from huge losses. Instead, they said that any eventual loss would be less than the losses that Americans would endure if lending froze up, as it did briefly last week in the panicked aftermath of the failure of Lehman Brothers and the near-death of the American International Group.

The candor is appreciated, but it is not a good enough answer for Congress or the American people. Rather than rushing to approve the $700 billion bailout, lawmakers need to examine alternatives. They should look for one that ideally would let taxpayers share in the gains from any postbailout revival, along with the bankers and private investors who will make money if the bailout succeeds. Several ideas have been advanced that Congress should examine.

snip//

One thing is certain. If taxpayers do not share in the potential profits from a bailout, someone else will. On Tuesday, the Federal Reserve announced that it was relaxing rules that require investors who take large stakes in banks to submit to longstanding regulations on transparency and managerial control. Private equity firms have pushed for the changes because they would like to become big investors in beaten-down banks but do not want to be regulated.

Relaxing the rules invites more of the same type of opacity and risk-taking into banking that caused many of today’s financial problems. Politically, the Fed’s timing could not have been worse. Taxpayers are being asked to buy up banks’ junky assets, with little expectation of return. At the same time, private equity firms are being invited to make what are likely to be highly profitable investments in the same banks.

That’s not a plan that lawmakers and voters can support. Congress has more work to do.

[Rosa Luxemburg]

1. Pouring money down the drain

ask Warren Buffet to bail them out