Update: yes, the Paulson Plan was just theft

Opening of “The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks” (30 September 2008):

“Buy this because it is extraordinarily cheap. The owner must sell right now because…”

This is the opening line of a thousand confidence games. Stories told by well-dressed, smooth-talking grifters. Like many of those sent out to sell the Paulson Plan (which is not dead, as Congress will certainly reconsider some form of it later this week).

The government can buy financial assets from the world’s leading financial firms at prices so low that substantial profits are likely.

Read those words. Confidence tricks require marks, people who believe preposterous statements about promised gains if stated authoritatively and backed with a slick story.

Now the Congressional Oversight Panel tells us the tab after the first few months of the “THEFT TART (Troubled Assets Relief Program):  $78 billion.  Don’t worry, the money was not lost.  It’s just moved from your pockets to those of people with great political influence.

Only fools expected any other outcome.  And the meter is still running, with the losses mounting day by day.  To read the unpleasnat details see “Congressional Oversight Panel Releases Third Monthly Oversight Report: Valuing Treasury Acquisitions“, 6 Feburary 2009 — Excerpt:

The report acknowledges that Treasury may have had valid policy reasons for making these transactions, and that it is possible that the value of the investments may eventually be worth more than the amount Treasury paid—or they may be worth much less. The report does not take a position on whether Treasury pursued the correct strategy, instead focusing on the contrast between the quantitative results of the study and the statements made by Secretary Paulson last year.

Last fall, Treasury sold the American public on the TARP program by claiming that it would help banks while protecting taxpayers. Secretary Paulson described the transactions as ‘at or near par’—that the value the assets Treasury received was roughly equal to the money being spent. But that didn’t happen. Treasury got less than it spent.” said Elizabeth Warren, the Chair of the Oversight Panel. “Treasury should have leveled with the American people about the purpose of the program. It’s time to explain what’s happened so that we can have a good, old-fashioned debate about whether this is the smartest way to spend our money.

Afterword

Please share your comments by posting below.  Per the FM site’s Comment Policy, please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

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To read other articles about these things, see the FM reference page on the right side menu bar.  Of esp interest these days:

Posts about Theft pretending to be solutions

  1. Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
  2. The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks, 30 September 2008
  3. A reminder – the TARP program is just theft, 24 November 2008
  4. A solution to our financial problems: steal wealth from other nations, 2 February 2009
  5. Stand by for action – more theft of our money being planned in Washington, 4 February 2009
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12 thoughts on “Update: yes, the Paulson Plan was just theft

  1. It’s time to explain what’s happened so that we can have a good, old-fashioned debate about whether this is the smartest way to spend our money.

    I thought government was supposed to have ‘good old-fashioned debates’ before, not after doing things.
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    Fabius Maximus replies: You jest delightfully. Here’s something from this weekend’s “Recommended Reading” posts — “Congressional Offices Don’t Have the Stimulus Bill, Lobbyists Do“, Paul Bedard, US News and World Report, 12 February 2009 — Excerpt:

    We’re receiving E-mails from Capitol Hill staffers expressing frustration that they can’t get a copy of the stimulus bill agreed to last night at a price of $789 billion. What’s more, staffers are complaining about who does have a copy: K Street lobbyists. E-mails one key Democratic staffer:

    “K Street has the bill, or chunks of it, already, and the congressional offices don’t. So, the Hill is getting calls from the press (because it’s leaking out) asking us to confirm or talk about what we know-but we can’t do that because we haven’t seen the bill. Anyway, peeps up here are sort of a combo of confused and like, ‘Is this really happening?’”

    Reporters pressing for details, meanwhile, are getting different numbers from different offices, especially when seeking the details of specific programs.

    Worse, there seem to be several different versions of what was agreed upon, with some officials circulating older versions of the package that seems to still be developing. Leadership aides said that it will work out later today and promised that lawmakers will get time to review the bill before Friday’s vote.

    They cannot debate legislation that they have not seen. It’s a great time-saver, government efficiency at its finest.

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  2. This article points out the complete regulatory capture of the bailout explains why it’s pure theft: “The Depression Scenario Is Here“, John Robb, posted at Global Guerillas, 9 February 2009.

    Also see “Why the U.S. Stimulus Package is Bound To Fail“, David Harvety, posted at Reading Marx’s Capital (part of a 13-part video course) — Harvey is a Professor of Anthropology at CUNY; PhD in geography (see his CV).

    This article seems one of the more insightful discussions of the financial meltdown, and enumerates some credible reasons why the bailout won’t work in America but may well work in China. Ignore the Marxist polemics in the first 2 paragraphs — it’s irrelevant to his argument. Essentially, he points out that the bailout as it currently exists is doomed to fail because America starts from a position of chronic indebtedness, which means that the rest of the world would have to be willing to endlessly finance the deficits America would need to run to make the bailout work, and that’s not likely to happen in a global depression. Especially when “financing America’s bailout” really means loaning us unlimited amounts of money to waste on an out-of-control military-industrial complex that burns mountains of cash to accomplish nothing very much other than wrecking third world countries and destabilizing the Westphalian state system for no discernible reason.

    Moreover, he points out that regulatory capture by the industries which would have to be reformed prevents a true Keynesian solution to America’s economic crisis — i.e., prevents the redistribution of the bailout monies to the bottom 80% of the population, away from the top 20%. The evidence on this latter point seems conclusive: to date, each of the bailed out industries has violently resisted any reform. We have seen no legislation reducing CEO pay, no legislation eliminating the government-mandated monopoly of the bond rating agencies and no requirement for any accountability on their part by law; we have seen no legislation raising the minimum wage, no legislation to raise the marginal tax rates of the top 20% of the income distribution so as to reduce economic inequality; we have seen no legislation to eliminate lobbying, no legislation to remove the taint of corporate money from campaign contributions. We have seen no legislation to break up grotesque monopolies like Wal*Mart, Microsoft, the big four media monopolies Time-Warner and Bertelsmann and MCA-Universal and Sony-Columbia, no legislation to liquidate insolvent banks, no legislation to confiscate assets from bankrupt wealthy rentiers like GOldman Sachs (only the assets of the bottom 80% of the pouplation can be siezed when they go broke; when a member of the elite top 20% goes broke, the government steps in to repay their losses with taxpayer money), no legislation to reduce or even slow the unchecked growth of corporate power in society.

    As it stands now, the stimulus package looks like yet another gigantic transfer of mountains of cash from the bottom 80% of the population to the top 20%. The vast expansions of corporate power written into the bailout legislation probably include features that will shock people once they’re made public in a few weeks, much like the features of the Patriot Act (another midnight special that got passed in a rush without anyone reading it). I would imagine some of the milder corporate-lobbyist-dictated features of this $787-billion-dollar stimulus package include tidbits like legalizing human slavery for defaulted credit card balance, the creation of debtors’ prisons, the death penalty for downloading, torture as a new technique of debt collection, forced organ donations from living corporate customers for past-due balances and so on, but I can’t be sure because I haven’t read the entire stimulus legislation. No one has read it, as far as I can tell, except the corporate lobbyists who wrote it.

    Pelosi apparently wouldn’t even allow congress to read the legislation in conference, only the lobbyists got to view and discuss the details. As a result “There is a feeding frenzy of lobbying involved, and regulated industry is interested in ensuring that the final legislation benefits them to the maximum,” says Gary Bass, founder and executive director of the government-accountability research-and-advocacy group OMB Watch. (op. cit.)

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  3. It’s time to explain what’s happened so that we can have a good, old-fashioned debate about whether this is the smartest way to spend our money.

    Well, actually it isn’t our money; it’s money we have borrowed from the Chinese and – perhaps more interestingly – the Arabs.
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    Fabius Maximus replies: A harsh, even bruth, truth. Perhaps all Federal spending bills should begin “We consider this need so great as to warrant borrowing the funds to do it, which sums shall burden our children and their children…”

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  4. Mike Whitney in Friday’s Counterpunch argues that Tim Geithner (wrongly described as “over his head”, is actually doing just what he’s supposed to do, keeping the top four national banks (Citi, BofA, Wells Fargo and JP Morgan-Chase) — which reportedly hold up to 2/3 of the toxic mortgages in the system, and are already bankrupt if the losses were recognized –in private hands. Put this together with Secretary Paulson’s earlier interventions, and you have a concerted federal attempt to preserve private capital with taxpayer money.

    See “Geithner’s Coming Out Party“, Mike Whitney, Counterpunch, 13-15 February 2009 — “Not Ready for Prime Time”
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    Fabius Maximus replies: This policy is best seen as “burning public money in order to keep our ruling elites warm.” The mainstream media has worked diligently to conceal how this differs from what everybody else is doing with their broken banks, least the American sheep public realize the folly of our policy.

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  5. Electro (comment #3): “an out-of-control military-industrial complex that burns mountains of cash…”

    Yes. Undoubtedly.

    “… to accomplish nothing very much other than wrecking third world countries and destabilizing the Westphalian state system for no discernible reason.”

    All generalizations are false (except this one). So restoring Kuwait’s sovereignty in Gulf War One was destabilizing the nation-state system? Invading Afghanistan and overthrowing the Taliban in response to 9-11 was destabilizing, but invading Nazi Germany was not? I would say that it is AQ, Narco-terrorists, pirates, and their supporters that are wrecking the legacy of the Treaty of Westphalia, not necessarily the U.S.

    You start out well but then the “Everything the U.S. Does is Bad Drug” starts kicking in.

    As for the rest, we keep electing the same “cash for votes” crowd (Demicans and Republicrats) and then expect a different result. Insanity.

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  6. Arms Merchant remarks: So restoring Kuwait’s sovereignty in Gulf War One was destabilizing the nation-state system?

    I’ll take that challenge. No one else wants to bite that bullet, but I will.

    Yes. Exactly. Restoring Kuwait’s sovreignity in Desert Storm in 1991 trashed the multi-state system.

    We should have let Saddam take over Kuwait and go to war with Suadi Arabia — instead we should’ve put the money into achieving energy independence. Ousting Saddam from Kuwait did not help America in the long run; in fact, it badly damaged us, and badly hurt the Westphalian nation-state system because it led directly the invasion of Afghanistan and Iraq.

    If we’d achieved energy independence instead of pissing our money away on a military that could oust Saddam from Kuwait in 1991, America would be prosperous and debt-free and would have no entanglements in the middle east today because we could tell Iraq and the rest of the middle eastern countries to take a hike because we wouldn’t need their oil. More significantly, if we have achieved energy independence in 1991, we wouldn’t have needed any bases in Saudi Arabia, bin Laden wouldn’t have sent the 9/11 hijackers, and 9/11 and the consequent Iraq and Afghanistan wars would never have happened.

    So by arguing for our invasion of Kuwait in 1991, you are actually arguing in favor of the 9/11 attacks. So here’s my question to you, Arms Merchant…why do you hate America? Why do you approve of the 9/11 attacks?

    Arms Merchant went on to prove his lack of knoweldge of history by claiming: Invading Afghanistan and overthrowing the Taliban in response to 9-11 was destabilizing, but invading Nazi Germany was not?

    Correctamundo! You have won the kewpie doll, sir. And the reason why invading Afghanistan was destabilizing while invading Germany was not is that Afghanistan has a long history going back thousands of years of being unconquerable. The battle of Maiwand, for example, in which an entire British army was slaughtered leaving one man alive to tell the tale to the British Empire, was only one of many examples of foreign armies wiped off the map while trying to conquer Afghanistan. The brutal fact remains that Afghanistan rugged terrain (in which some valleys receive sunlight only 6 months out of the year) insures that Afghanistan cannot be ruled by a central authority. That country has always been a loose collection of warlord-run semi-independent fiefdoms and always will be, barring some science-fictional novelty like using nuclear weapons to blast flat all its mountains. Alexander the Great stopped his advance when he hit Afghanistan. For 2500 years, Afghanistan has been the graveyard of empires, the place where imperial hubris goes to die. And we think we’re better at soldiering than Alexander the Great? More mighty globally than the British Empire was at its zenith? More brutal than the Soviet Red Army? Please.

    Germany had a central parliament and elected leaders and in fact one of the more progressive social systems in Europe when Hitler took over in 1932. Unlike Afghanistan, Germany was not a set of warlords jockeying with one another for control of a war-torn and disunited set of fiefdoms. Big difference. Read a book sometime and learn your history.

    Arms Merchant finished off his credibilty by averring: I would say that it is AQ, Narco-terrorists, pirates, and their supporters that are wrecking the legacy of the Treaty of Westphalia, not necessarily the U.S.

    If a handful of guys skulking around with box cutters in the caves of Waziristan can destroy the legacy of the Treaty of Westphalia, it doesn’t deserve to survive. Seriously — you’re not trying to tell me a handful of creeps who flew 2 airplanes into a pair of skyscrapers wrecked the nation-state system, are you? I mean…you’re not really saying that, right?
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    Fabius Maximus replies: My position in an intermediate between these two extreme views. A key aspect of the Westphalian order (by evolution, not design) was allied effort by nations to fight aggressors. At least, big-time aggressors inside the western world. Since 1648 no major aggression has paid off, an incredible record. And since WWI the west has attempted to extend this to cover more of the world.

    In that sense, the multi-lateral effort to kick Iraq out of Kuwait is in accord with both long-time western history and the post-WWI and esp post-WWII order.

    As was our intervention into Afghanistan to change the regime. They provided bases to a group that attacked the US, and the paid the price. However I see little basis for 9-11 justifying long-term occupation of Afghanistan, and no basis for pre-emptive invasion of Iraq. Esp the latter, as pre-emptive war has been a violation of the laws of nations since Westphalia(albeit one often violated).

    Note however that invading Iraq is IMO a venial sin under the Westphalian order. Angering big powers gets small nations stepped on. Esp, under our system, for small tyrants. Occupation of Iraq is IMO illegitmate, with only a tiny UN cloak of legality on it. A better gig would have been to set up a puppet regime, give them some money for a few years, ask they to write regularly, and exit (leaving advisors). Liberators are usually welcomed, unless they stay too long.

    See the Wikipedia entry about Westphalia for more information.

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  7. I remember in the early 80’s reading a NYT piece that pointed out that, over long time periods, houses go down in value, not up. The reasons are many, wear and tear, out dating of technology, demographic trends. The article pointed out that the baby boom generation was assuming it could sell its housing stock en mass without taking a haircut.
    I wonder if the semi-panicked attempt to push through immigration reform by Bush happened when they saw this coming. Three or four million Mexicans not showing up didn’t help home prices in Merced, Ca.
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    Fabius Maximus replies: That is a well-established fact. Home prices, the value of structures, are a depreciating asset. They require maintenance and taxes to hold their value.

    Land has a different dynamic. The value of land tends to increase in value as it evolves from rural to urban. The addition of infrastructure and increasing population density increases its value. Once the area reaches a steady state, land values tend to remain flat in real terms — or decline if the area decays.

    This process is easily seen in the urban areas of California. Much of it was rural before WWII, then began a multi-generational urbanization. After 50 years of this, people thought the dirt had a magic quality. People would always want to move there — despite its decaying services, high taxes, intrusive regulation, disfunctional government, horrific traffic, pollution, and (except for a few areas) average to poor weather.

    We have evolved to to gather fruit and hunt deer. Our instinctual mental tools give us zero grasp of economics.

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  8. Electrophoresis, you get the straw man award again. You asserted that the U.S. military accomplishes “nothing very much other than wrecking third world countries and destabilizing the Westphalian state system.”

    All invasions are destabilizing to the country that gets invaded. Westphalia never halted interstate war. The question is whether the use of U.S. military forces does nothing but wreck third world countries and destabilize the nation-state system formalized in 1648. They have not. You lose.

    If you don’t believe me concerning strictly military actions, see also E. Timor, OEF-Philippines, Ache tsunami response, Pakistan earthquake response, etc., etc.

    You could make a case that pre-emption against Iraq violated the U.N. charter, but not Westphalia. In fact, important policy efforts (e.g., human rights in North Korea) are prohibited when strictly observing Westphalian norms (non-intervention in internal affairs between states at peace).

    Your rant about energy independence, a fiction, is smokescreen. See “The Illusion of U.S. Energy Independence: An Assessment of the Current State of Energy Use“, William O’Keefe & Jeff Kueter, The George Marshall Institute, 2006.

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  9. Arms Merchant continued with his string of provably false statements: All invasions are destabilizing to the country that gets invaded.

    Obviously and provably untrue. Japan was much more stable post-1945 than from the 1930s up to 1945. Germany was much more stable post-1945 than from the 1920s up to 1945. Endless examples.

    Arms Merchant: Westphalia never halted interstate war.

    Have you been living in a bathyscaphe for the last 60 years? Seriously, do the words “Korean War” ring a bell? No? How about “Kosovo intervention 1998”? No? How about… Oh, why bother? You’re clearly living in la-la land, go back to smoking your bong and leave the adults to discuss real history in the real world.

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  10. McClaren

    You’re quibbling about timescales. I’m talking about the destruction and immediate aftermath of the invasion. You’re talking the long term political impact.

    Interstate war = war between nation-states. Do you even know what you’re talking about?

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  11. To comment #3: thanks for that Harvey article. Nice. I think the switch from emergent productivity to over-reliance on financial growth later on is an accurate observation, if ultimately unprovable. His comparison of the Keynesian obstacles in the US politically ‘neoliberal’ climate versus China’s more dynamically ‘managed’ climate seem also ‘spot on’.

    I found this one, which also has a few long-view perspectives, also interesting, although perhaps too long and also the beginning seems far better than the middle and end, but anyway: “The 2008 World Economic Crisis: Global Shifts and Faultlines“, by Bulent Gokay, Centre for Research on Globalization, 15 February 2009 — Excerpt:

    In order to make clear sense of this crisis, I would like to develop a broad picture here regarding the configuration of the world economy. My focus here is less on intentions than on structures, less on ‘goodness’ and ‘badness’ than on historically configured relations of power. My purpose here is, above all, to make connections between different layers of global system to explore the long-term origins of the current global systemic crisis.

    The recent crisis is an expression of the structural changes and deep-rooted contradictions which have occurred within the global system in the last 30 years. As a result, today’s global economic system is marked by three profound vulnerabilities:
    1) the explosive growth of the financial system relative to manufacturing and the economy as a whole, and the proliferation of speculative and destabilising financial instruments of wealth accumulation;
    2) the loss of relative power by the US, and the rise of other centres of accumulation;
    3) resource depletion and ecological crisis.

    I am hoping that by examining each of these three areas where contradictions and vulnerabilities have been structurally emerging by the very logic of the global economic system and the process of capital accumulation, I can offer a more comprehensive understanding of the deeper roots of the current financial crisis and serious deep and synchronised economic downturn.

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