Memory Lane on the Paulson/Goldman Stickup: What I wrote Sept 20, 2008 and why it matters today

by: Ian Welsh

Fri Jul 17, 2009 at 06:00


Because sometimes, I told you so is necessary, in the hope that next time people might listen.  This is what I wrote September 20th, 2008:

This is a stickup. Paulson is trying to stampede the Congressional herd into giving him powers and money that he knows they would never give if they had time to think it through carefully. It worked with the Patriot Act. It worked with the AUMF. He's betting it'll work again. Create a crisis (or lie one into existence) then demand dictatorial powers and unlimited spending authority to deal with it.

Congress needs to not succumb to fear or to explicit or implicit blackmail. If the crisis was as severe as Paulson makes it out to be, virtually the end of market capitalism, he wouldn't be quibbling over whether or not CEOs get to keep their golden parachutes.

In effect, that quibble is like you walking into your local bank and saying "I need you to loan me a million bucks. Here are the conditions I must insist are met before I let you lend me the money. First..."

Say what?

He's given his tell, that he's a liar, a thief and a scam artist.

Time for Congress to call his bluff, and to see that the financial crisis is dealt with on their terms, with strict oversight by people they can trust, not by a scam artist and liar like Paulson.

Of course, Congress didn't call his bluff and Congress did fall for it.  But let's remember our history.  The House voted against.  Nancy Pelosi indicated that she would not pass TARP unless Republicans voted for it in the same proportion as Democrats.  They weren't going to do that, so TARP was dead.

Then Barack Obama stepped in and started twisting arms.  TARP is Obama's baby.  If you like it, or don't like it, remember, without Barack Obama it would have died.

This is the fundamental problem right now with Democrats.  They passed a lousy stimulus, they made TARP Democratic policy by passing it with majority Democratic votes and they are on their way to passing a lousy healthcare bill which won't even kick in till 2013.  

Bad policy leads to bad outcomes.  Bad outcomes get blamed on the incumbents (as they should).  TARP, the Stimulus, healthcare and the economy become less and less the Republican's problem every month that passed.  Even if they screwed it up, Democrats control the House, Congress and the Presidency.  It's up to them to fix George Bush's mess, and if they don't they will be judged as failures, and that judgment will be accurate and deserved.

And the outcomes are going to be bad.  The stimulus bill was both badly put together (too many tax cuts, not properly targeted) and too small.  The healthcare bill should be single payor, because single payor is proven to work and the witch's brew that Congress has put together isn't proven to work and they can't afford to fail.  And TARP was, and is, a piece of crap, but the differences between Bush/Paulson financial policy and Obama/Geithner are so thin as to be largely cosmetic.

Policy has consequences.  The "compromise" position between "doing it right" and "doing it wrong" may work sometimes, but it doesn't work when a nation is in crisis and has spent 30 years digging itself into a hole.

By the time Obama comes up for reelection, Americans won't have better healthcare and they will have less jobs than before the recession and the stimulus.

That's what he'll be judged on, and all because he signed on for Paulson/Bush financial policies, and compromised his key domestic and economic policies to the point where they wouldn't work.

Ian Welsh :: Memory Lane on the Paulson/Goldman Stickup: What I wrote Sept 20, 2008 and why it matters today

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I'm still not sure (0.00 / 0)
what else America was supposed to do. The effects of the mortgage meltdown and resulting credit crisis have been bad enough; had AIG and Goldman Sachs been allowed to fail, the global financial system would have collapsed. There was no federal agency large enough to handle the crisis, and with AIG there was no authority, either. Granted that the bailout was made under duress; but the duress was real.

Do an FDR (4.00 / 5)
Temorarily take over the banks.  Do an honest assessment and let the bad ones die and let the healthy ones quickly revert to private entities.  Install real watch dogs that prevent the "gaming" (i.e. con james and rigging the game) that led to the catastrophe.

The duress was real in 1933.  FDR fixed it for 75 years and it would have lasted longer if "free market" zealots had n't un-fixed it.

A real fix would have cost a lot less than this mess.

And the banks have resumed the bonusses before they opened up the loan spigots.


[ Parent ]
Why not turn the banks into regulated public utilities? (4.00 / 1)
Just saying.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

[ Parent ]
I would think (0.00 / 0)
that on the stimulus bill it could have been larger and  more-directed at well...stimulus; on the bailout, much more control should have been taken at the targeted institutions and then compensation practices reformed and lending practices for projects that help the economy loosened. I would hope no one is saying just let the old system crumble and not put anything in its place. I have been critical of the Obama administration on many of these points when it became clear what type of administration he was going to run and I believe that should be our role not "cover his back"; but having said that I agree with you that many of these policies were put into effect under duress, political duress. It is not clear to me how much of the "right" policies could be "effected" with the present constellation of hostile media, "scorched earth Republicans" in opposition, and general Democratic mush in the majority. Oh, we should not forget Obama's lousy cabinet and advisers the likes of which (Geithner, Summers, Arne Duncan, Gates...) we have not seen since ...Bush/Cheney? Hard to put into place  "right" policies with an executive branch that thinks those policies are anathema.

[ Parent ]
Temporarily take them over and break (4.00 / 1)
them up so they aren't too big to fail.

My blog  

[ Parent ]
Real or not... (4.00 / 1)
Let's remember that we're on the hook to the banksters for $15 trillion in total. TARP's $700 billion is only a part of that, and the bailout didn't begin with TARP at all; the exact number of trillions escapes me, but the banksters had hauled in one or two well before Lehman.

What TARP did -- and what Obama did, at the point of maximum leverage -- was ratify, politically, the lack of accountability and transparency of the entire bailout process. Obama's Presidency really began at that moment.  

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


[ Parent ]
Somewhere between 25 billion and 100 billion would have tided them (0.00 / 0)
over till January.  Orszag could have been given oversight responsibility over the money.  I suggested it at the time.  it is also not clear that the financial system would have collapsed entirely, I know some very smart people who got it right going into it who didn't think so (for example, Barry Ritholz).

Also, the Fed had sufficient authority to print whatever money it wanted anyway.


[ Parent ]
If that happens there is no reason for progressives (4.00 / 1)
to stay with the democrats. I won't be associated with Tarp, if I ain't a dem and the country will still need progressive policies, not policies even more conservative than Obamas.

My blog  

Yes there is (4.00 / 2)
There is no "the Democrats."  There are good ones and bad ones.  Progressives should work to replace bad ones with good ones.  You'll find that you have good Greens and bad Greens just like now, because that is how people and institutions are.  Except you'll be starting from a base of NO power at all, fighting an uphill fight, and never winning at all.

But more than that, we need to do more outreach to the public to create DEMAND for progressive policies.  Then the party doesn't matter because the people will help make it happen.

--

Seeing The Forest -- Who is our economy FOR, anyway? Twitter: dcjohnson


[ Parent ]
You've been saying that for years and (0.00 / 0)
you still haven't done it.  Until you do get rid of bad dems, I am not bothering with you.

My blog  

[ Parent ]
Archives and the historical record (0.00 / 0)
We covered this story as it unfolded in near real time, not being otherwise occupied. So for the links alone, detached from the polemic, these archives may be useful.

Looking back, I'm impressed by how much explanatory power Shock Doctrine had and has -- at least on the level of day-to-day tactics. $15 trillion isn't such a bad haul, after all. (Why our betters have the power they do is a matter for political economy, and I'm not sure that Klein's framework is useful for that.) We gathered the thousand or so posts into an ongoing book; here's chapter one of the ongoing saga, back from Fall 2008. The idea I found most useful is "the bailout as strategic behavior". One has to wonder, for example, whether LIBOR (given that it's an artifact of Thatcher's privatization efforts) was a shock meter or a shock generator. Unproven, certainly, but given that our problems are not "confidence" but trust, not unreasonable to ask.

As for party politics... We still have two parties. The crazy party, and the Republicans. As Ian points out, TARP was a dead giveaway -- if FISA [cough] reform wasn't.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  


Here's the newest rahmbama game ... (0.00 / 0)
.. all of which have nothing more to do than to serve their corporate masters who are their largest campaign donors:  hold off on universal healthcare until 2013 and then wield the threat that a republican president would repeal it to get the pope of hope reelected.  So, more people would have to die so that the rahmbama team get to get reelected.  No wonder it came through the house where rahm has much more influence after cracking heads as the head of the dccc.

That's my theory anyway and I'm surprised that I haven't heard anyone else pointing this out this possibility.  I just don't see why it should take so goddamn long to have this go into effect ... four fucking years.  And why exactly does it start after obama's term ends?  A coincidence?  

The pope of hope and his sidekick, the dlc's master of deceit, are such wonderful people that I can't put nothing past the scumbags.  And that's exactly what they are ... the pope of hope included although he tries to distance himself from his henchman, emanuel, who does his dirty work while the head pr man for the establishment gives eloquent speeches while effectuating evil.  

Z  


Ian Welsh fans (among whom I number myself) (0.00 / 0)
may also enjoy this piece by Stirling Newberry.

I am in earnest -- I will not equivocate -- I will not excuse -- I will not retreat a single inch -- AND I WILL BE HEARD.  

Memory Lane (0.00 / 0)
Another reason why TARP passed was the false scare tactic of invoking Martial Law.  

TARP is the main difference between 1929 and 2008 (0.00 / 0)


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