The Paulson Plan was — as many suspected at the time — just the first step in a larger expansion of government power. Now Geithner proposes additional powers, discretionary and open-ended expansion of the government’s authority. How many more such steps will be necessary in the next few years? Where will this end?
Meanwhile Congress watches as our freedoms drain away, content to passively agree to each new rip in the Constitution.
Both Left and Right have warned about loss of freedoms, usually to jack-booted government thugs. Is it better or worse that this happens quietly, in tiny steps, though the growing power of well-dressed and mild-mannered bureaucrats?
Just for practice, while you read this chant “Baa, baa, baa.” But softly; please do not disturb the rest of the flock as we stroll into the pen. At the end are links to various expert reviews of the Geithner Plan.
An excerpt from Treasury Secretary Tim Geithner’s written testimony on March 24 to the House Financial Services Committee
As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can. The Administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context.
The proposed resolution authority would allow the government to provide
- financial assistance to make loans to an institution,
- purchase its obligations or assets,
- assume or guarantee its liabilities, and
- purchase an equity interest.
The U.S. government as a conservator or receiver would have additional powers
- to sell or transfer the assets or liabilities of the institution in question,
- renegotiate or repudiate the institution’s contracts (including with its employees), and
- prevent certain financial contracts with the institution from being terminated on account of the conservatorship or receivership.
This proposed legislation would fill a significant void in the current financial services regulatory structure with respect to non-bank financial institutions. Implementation would be modeled on the resolution authority that the FDIC has under current law with respect to banks.
Before taking any emergency action, the Treasury Secretary would need to determine that resolution authority is necessary upon the positive recommendations of the Federal Reserve Board and the appropriate federal regulatory agency.
This is an extraordinary time and the government has been forced to take extraordinary measures. We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient and our system more just. Financial crises contain a basic and tragic unfairness – that those who were prudent and responsible in their personal and professional judgments are harmed by the actions of those were less careful and less prudent.
The actions that we take will help restore confidence in our markets and revive the flow of credit to households and businesses. They will create an environment where it is safe to save and invest and where all Americans can trust the rules governing their financial decisions. The process of repair will take time, but our actions will succeed. For all the challenges that we face, we still have a diverse and resilient financial system. Together we will help prevent future crises and the costs they would impose.
Some experts review the Geithner Plan
- “Despair over financial policy“, Paul Krugman, blog at the NYT, 21 March 2009 — Nobel Laureate economist.
- “More on the bank plan“, Paul Krugman, blog at the NYT, 21 March 2009
- “Geithner Plan Will Rob US Taxpayers“, Reuters, 24 March 2009 — Remarks by Joheph Stiglitz, Nobel Laureate economist.
- “Successful bank rescue still far away“, op-ed by Martin Wolf, Financial Times, 24 March 2009
- “The Geithner Plan Won’t Work“, James K. Galbraith, posted at The Daily Beast, 24 March 2009
- “Obama’s bank plan could rob the taxpayer“, Jeffrey Sachs, op-ed in the Finanical Times, 25 March 2009
What conspiracy? This is happening in open view, reported in the newspapers. This is a conspiracy in the same sense as that between a Shepard and his dog, working to fool the sheep.
Tangible evidence provided by electrophoresis in comment #1:
Afterword
If you are new to this site, please glance at the archives below. You may find answers to your questions in these.
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).
For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar. Of esp relevance to this topic:
- about the Financial crisis – what’s happening? how will this end?
- about the America – how can we reform it?
- some Good News about America!
Posts about the Paulson Plan, now Obama’s Plan:
- Treasury Secretary Paulson leads us across the Rubicon, 9 September 2008
- Another step away from our Constitutional system, with applause, 19 September 2008
- America appoints a Magister Populi to deal with the financial crisis, 21 September 2008
- Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
- A quick guide to the “Emergency Economic Stabilization Act of 2008″, 29 September 2008
- The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks, 30 September 2008
- A reminder – the TARP program is just theft, 24 November 2008
- Stand by for action – more theft of our money being planned in Washington, 4 February 2009
- Update: yes, the Paulson Plan was just theft, 14 February 2009
- Now is the time for America to get angry, 24 March 2009
Posts about the American spirit:
- Americans, now a subservient people (listen to the Founders sigh in disappointment), 20 July 2008
- de Tocqueville warns us not to become weak and servile, 21 July 2008
- The American spirit speaks: “Baa, Baa, Baa”, 5 August 2008
- We’re Americans, hear us yell: “baa, baa, baa”, 6 August 2008
- This crisis will prove that Americans are not sheep (unless we are), 8 January 2009
- About security theater, a daily demonstration that Americans are sheep, 25 January 2009
FM Note: The first comment, and already we have a sure winner for “best of the thread.
I’m sorry, I just can’t listen to these kinds of conspiracy theories.
Why do you always cite this an example of a government conspiracy to take away our freedoms? Is it not, rather, a coup by the financial class to steal our wealth?
Why blame the government when you could blame the special interests which it’s serving?
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Fabius Maximus replies: First, 250 posts on this site use the phrase “ruling elites”, so its not as if I never make that connection. As for “a coup to steal our wealth”, I’ve written many posts about this.
* Slowly a few voices are raised about the pending theft of taxpayer money, 21 September 2008
* The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks, 30 September 2008
* A reminder – the TARP program is just theft, 24 November 2008
* Stand by for action – more theft of our money being planned in Washington, 4 February 2009
* Update: yes, the Paulson Plan was just theft, 14 February 2009
* Now is the time for America to get angry, 24 March 2009
* America on its way from superpower to banana republic, 28 March 2009
(2) Why does this post not describe the connection? Most people don’t get it, and I stop adding extra themes at aprox 1,000 words. The average Internet post is (so I’ve read) roughly 250 words; in my experience readership falls off sharply above 1,000 words.
(3) “Why blame the government when you could blame the special interests which it’s serving?”
IMO neither “nature” or “God” care about blame. It’s a bogus concept, unless you only care about getting a gold star in the afterworld. If we are sheep there will be a shepard. That’s the law, just like gravity. Blame neither the shepard nor his dog if we decide to be sheep.
A friend of mine put it best: “Blame is not a productive management exercise.”
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Fabius Maximus replies: Nicely said. Also…
Meet the new boss, same as the old boss.
FM, I know you don’t watch TV, but you can read the transcript of William Greider’s appearance on Bill Moyers’ Journal on 27 March 2009. Here’s a slightly condensed excerpt:
I plan to be at my local gathering.
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Fabius Maximus replies: Sounds like fun path to reform, how appropriate for America! Do you have any historical examples of organizations of young people who want reform, holding bonfires and demonstrations — with positive results?
* There were several such movements in Europe during th 1920’s, two of which eventually did gain power due to their charismatic leaders (how did that work out?).
* There was a less-organized youth movement in the late 1960’s, which developed a powerful political component (e.g., SDS, Weathermen) — not only staging demonstrations around the nation but also playing a large role in nominating a Presidential Candidate in 1972.
* There was a powerful movement of students, sick of watching their nation tear itself to pieces in endless war, that took power — unified the nation — and sparked moral reform. Although the counter-revolution defeated them (with foreign military assistance), they continue the struggle even today. They’re called the Taliban.
FM: “IMO neither ;nature; or ‘God’ care about blame.”
What you call blame is only observtion. Blame in the sense I used it means “correctly identify the cause of something.” Or correctly identifying the subject to be studied.
If you take the current financial collapse and scandal as an example of government encroachment on our freedoms, you are incorrectly identifying the subject to be studied. You are looking at a superficial aspect of it, and leading your readers away from seeing what needs to be done to prevent its recurrence. Lessening government interference with our freedoms (to trade, in this case) is actually part of the philosophy which caused the problem.
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Fabius Maximus replies: Using that definition, I better understand your comment. These are things about which reasonable people can only guess, and hence will disagree. I believe the necessary first steps to be:
(1) Mass problem identification: getting people angry at something they can easily see and understand.
(2) Mass or group understanding that we are responsible for both the problem and solution.
The steps after those are more complex, and require a political infrastructure (as opposed to singing around bonfires and marching through the streets). I’ll leave those for another day.
“Before taking any emergency action, the Treasury Secretary would need to determine that resolution authority is necessary upon the positive recommendations of the Federal Reserve Board and the appropriate federal regulatory agency.”
I find it disturbing, though not at all surprising, that the FED is put forward to be in on such decisions. Indeed, I think it is the key statement being made. although the need for more comprehensive regulation is obvious and at this point generally agreed upon, as you say, the ‘conspiracy’ is out in the open.
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Fabius Maximus replies: Count me as a dissenter as to one of the big (and absurd) myths about the crisis. The Federal and State government had almost unlimited regulatory authority over financial institutions operating in this nation. Their slightest wish would be respected, immediately. Giving them still more power is the triumph of stupid hope over experience.
The agencies did not regulate as needed becuase the financial industry used money to buy political influence, using both corporate and indvididual contributions. Putting still more thousands of pages of laws and regulations on the books is moronic, IMO — until we can end this pervasive buying of influence.
Of course, its not just the financial sector that buys our government. Health care policy, defense policy, taxation — even aspects of foreign policy — can all be bought for cash. Campaign contributions, junkets, paid speeches, hiring relatives (e.g., as PR consultants or real esate agents) … there are a thousand ways to play the game. And we’re the pawns.
FM replies: “Count me as a dissenter as to one of the big (and absurd) myths about the crisis. The Federal and State government had almost unlimited regulatory authority over financial institutions operating in this nation. Their slightest wish would be respected, immediately. Giving them still more power is the triumph of stupid hope over experience.”
This is “the best of the thread”.
Re FM’s reply to #5: I believe it clear from the context that Greider’s use of “bonfire” is metaphorical.
Has there ever been a reform movement that had anything like positive results? Well, do you want to count the various “colored” nonviolent revolutions in the countries of the former Soviet Union? Or India’s escape from the British Empire? Or the American Revolution? Or the abolitionist movement? Admittedly, the latter two resulted in war.
“A New Way Forward”, if you consult their website, does engage in “problem specification”, etc. – see their website. Their analysis seems to me to be reasonable and broadly compatible to what I believe your own understanding to be of how we got into this mess. Your willingness to heap scorn on me and them seems to me to be a hasty, rather than a measured, response.
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Fabius Maximus replies: I did not refer to “reform movements” in general, but to the specific type of movement you described. How many of the people at their demonstrations know about the specific recommendations at their website? 1%? 5%
Soon over half of every worker’s income will go to government. Monolithic government gives no choice, no way out of a bad situation but the government’s way. Only government slaves accept that situation.
Without the all-powerful government to limit competition, the whole fascist scheme falls apart. Blaming the financial or medical sectors for taking advantage of a corrupt and overreaching government is like blaming the welfare mother for having another baby to up her payments. She doesn’t know any better. Incentives matter.
Take away the government’s power to decide winners and losers in the normal course of commerce.
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Fabius Maximus replies: Perhaps you have heard of elections? We hold them every two years.
It’s amazing to read the comments here to see how far American’s will go, what imaginative leaps we will take, to justify our passivity. The US “all-powerful” government becomes a “fascist scheme” (evoking images of the NAZI’s), so we are by implication poor helpless puppies. No need to vote, organize, work for candidates. “There is “no way out”! The only thing missing from this comment (but perhaps implied is) “It’s not my fault!”
FM: “its not just the financial sector that buys our government. Health care policy, defense policy, taxation — even aspects of foreign policy — can all be bought for cash. Campaign contributions, junkets, paid speeches, hiring relatives (e.g., as PR consultants or real estate agents) … there are a thousand ways to play the game. And we’re the pawns.”
Pawns? Hell, we are the damn board, the politicians are the pawns, and the payer players on the back file are pushing them around and they’re all walking all over us. It says here that we will fall, if we do, because of this single originating factor, corruption, and if so, that will mean we got offed by the same disease that toasted the Soviets. I believe that is what is called ‘ironic.’
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Fabius Maximus replies: Nicely said!
Fabius Maximus replies: I did not refer to “reform movements” in general, but to the specific type of movement you described. How many of the people at their demonstrations know about the specific recommendations at their website? 1%? 5%
I wasn’t aware that I, or Greider, had described a specific type of movement. To reply to your question: The people who will come to the April 11 demonstration are being recruited via the Internet and related means of cybercommunication, so they WILL be familiar with the “specific recommendations”, which are not very complicated:
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Fabius Maximus replies: You did more than refer to a “specific type of movement”; you refered to a specific movement in comments #5 and comment #9. That was the basis of my reply.
In any case, these recommendation concern only a tiny fraction of this global crisis. It’s far more than a “financial sector” event.
Slightly off topic comment.
Fabius has rightly bashed the belief that Obama represents an immediate change to the system. As FM has noted before, Obama has thus far steered the same course as Bush on the big issues.
Today Obama made the first substantive difference in treating the economic crisis from the Bush administration by rejecting the GM and Chrysler reorganization plans. The Bush administration would have accepted them “with disappointment” and given the companies the money.
Market response to Obama’s first efforts at “change?” A 3+% drop. It appears that Wall Street preferred business as usual even though that model is totally broken.
It will be interesting to see how the Obama administration deals with the widespread disappointment with his changes. My hope is that he will take the Lenin approach and continue to break eggs in his quest for an omlette. My fear is that he will go back to defering to the so-called financial “experts” and continue to use our money to bandage the broken system.
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Fabius Maximus replies: Off-topic in one sense, very on-topic in another. I agree that “Wall Street” would prefer massive bailouts, for complex reasons. I discuss the latter part of your comment below, in reply to comment #16.
Fabius Maximus replies: Perhaps you have heard of elections? We hold them every two years.
It’s amazing to read the comments here to see how far American’s will go, what imaginative leaps we will take, to justify our passivity.
I’m not going to defend my passivity, but I am going to point out a few political realities.
I happen to live in a Congressional district that was heavily fought over last year. My district is composed, in large part, of highly educated people who passionately care about the issues. We even had a viable third party candidate who was very hard-driving and issue-oriented and who kept banging away the unworkable solutions his tanned, groomed, scripted, major-party opponents offered. Net results: business as usual.
Politicians from the two major parties and their re-election staffs have proven to be masters at spin and issue avoidance. They break down angry coalitions of voters by hitting the seams where they join together. They offer hope, pretend to lead, and make proposals that appeal to the masses. They play attack commercials frighten and confuse the voters, sometimes openly lying to the public but neither party cares enough about the truth to call the other on it. It’s all about image and product placement.
In short, they’ve turned the art of personality-based politics into a highly effective science and it is far easier, cheaper, and more effective in the polls than actually solving the problems that government faces.
FM, you’ve done a lot to fight this, including offering basic civics lessons, sarcasm, anything that you think will motivate voters to fight for the issue-based politics and solutions, and I applaud you for it. But it’s not enough. You need to start extrapolating what happens if the voters continue to do nothing because EVERYTHING I see suggests that’s what is going to continue to happen.
These extrapolations are very hard because this is another singularity event and all the rules change in unpredictable ways. But even the most cautious predictions are very alarming. We, and I’m speaking of individuals here, need to start considering what it means for ourselves because if I’m right and personality-based politics are truly dominant; then the US, as we know it, is probably already dead. There is no sense in trying to change the course of a the dead horse.
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Fabius Maximus replies: I don’t see why this is so difficult to understand. If we are sheep, there will be both wolves and shepards. It’s our choice. Unfortunately it is a collective choice. That means all “votes” are not equal. The result is the sum of our individual decisions weighted by the effort each person puts behind that choice.
While I understand why you might believe that “the US, as we know it, is probably already dead”, I choose to reject that possibility. It’s a matter of faith, faith in the American people.
FM reply to comment #7: “Count me as a dissenter as to one of the big (and absurd) myths about the crisis. The Federal and State government had almost unlimited regulatory authority over financial institutions operating in this nation. Their slightest wish would be respected, immediately. Giving them still more power is the triumph of stupid hope over experience.”
I find this comment confusing.
1. What sort of power does State govt have over a) the FED (the main subject of the post to which your response was directed) and b) international CDS regulations etc.?
2. There is room for respectful disagreement as the degree to which Congress or any admin. branch of the USG ‘has almost unlimited regulatory authority’ over the FED. They have often, including of late, refused to provide information when requested by Congress and/or witness Bloomberg’s recent FOI suit which went nowhere.
3. I was lamenting that the FED looks to be assuming yet more power. Your response: ‘Giving them still more power is the triumph of stupid hope over experience’ seemed to be part of your dissent albeit logically it was in agreement. However since you were talking about government being given more power and since presumably this does not include the FED in your comments, it is not clear what you mean there. Are you agreeing that giving the FED more power is a bad thing or are you saying something else?
4. It seems you might be saying that having better regulation of the derivatives markets etc. is ‘giving the governments more power.’ If that is your point, fair enough, except that the way in which I meant it – not explained in the post – was similar to how the CFTC monitor futures markets, i.e. that more clear and enforcable rules and market mechanisms are put in place versus the current OTC free-for-all in which vast sums far in excess of national GDP’s are traded willy-nilly. Such markets need not be managed by government, but government has to legislate the basic regulatory environment in which such markets operate.
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Fabius Maximus replies: I am uninterested in the tin-foil-hat brigade that considers the Fed as something other than a part of the government. The rest of this follows from that bizarro assumption, which I have discussed too many times already.
The government already had sufficient power to regulate the OTC derivatives market through its authority over the investment banks that are its center.
To pluto: With regard to Chrysler and GM, I’d say they had fallen out of favor with Bush and Obama is just continuing this. I mean, I consider it funny that a “radical socialist” like Obama wants to extract more concession from the autoworkers union.
That sounds like something Bush would get behind. More importantly, it sounds like something Obama’s Finance, Insurance, and Real Estate sector cronies could get behind, especially the Finance guys. I mean Chrysler is owned by one of those Finance outfits, Cerebus, so they are probably happy with anything Obama does to force concessions from the union.
“GM chairman Rick Wagoner was forced out Sunday, and local union leaders at two GM plants saw him as ‘the fall guy’ — a fate top bankers avoided when getting federal aid.” Auto workers, union leaders critique Obama plans, Ben Leubsdorf, Business Week, March 30th, 2009
I’m becoming incredibly cynical here, but I see it as “we’ll let some CEO take the fall, as long as no one at Goldman Sachs has to” on the part of Obama and his people. Hey, I hope I’m wrong and he’s just the first of many poor managers forced out, but it seems to me that some are favored of Heaven (or the Obama government) and some are tossed to the wolves, and it has had little to do with merit, so far.
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Fabius Maximus replies: I believe you are missing the point. Even the US government cannot bailout everyone. This is the just the start of the main event to the downturn, in which the government must perform triage. For more on this see:
* The last opportunity for effective action before disaster strikes, 3 October 2008
* A situation report about the global economy, as the flames break thru the firewalls, 26 January 2009
* Everything written about the economic crisis overlooks its true nature, 24 February 2009
Well, here’s GM’s problem: FundRace 2008 at the Huffington Post. People who work for GM gave TWICE as much to Republicans than to Democrats! ($121K to $61K). Who else will be forced out?
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Fabius Maximus replies: Good thinking on their part — in America buying a Congresscritter is the best of all investments — but bad execution.
“Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk“, F. William Engdahl, Center for Research on Globalization, 30 March 2009 — “When the Solution to the Financial Crisis becomes the Cause”
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Fabius Maximus replies: Like most of this stuff, it is myopic. The derivatives mess is large, but only one facet of a far larger global economic crisis. Resolving it in a bank-friendly manner does appear to have been a top priority of the both the Bush and Obama Administrations, however.
Psssst, when I was being guided into the pen by Obama, I could swear I heard him say something unbelievable, you know, like, “And your new car warranty is backed by me”. I don’t know about the rest of you, but I’m getting worried he’s not in charge of events as much as he’s leading on. That’s baaaaad.
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Fabius Maximus replies: In charge of events? I would be happy if he were adequately aware of events (which I doubt). At least he has started the process of triage. As I explained, I suspect the skill with which he does this over the next few years will be a major factor determining the success of his Administration. This is one of the most difficult things for any leaders to perform.
FM: “I am uninterested in the tin-foil-hat brigade that considers the Fed as something other than a part of the government.”
Agreed they are part of the government. However, by their mandate and nature they are redefining what ‘government’ means and open evidence of how the current oligarchical system is increasingly entrenched. Although part of the government as you say, they are not answerable to either Congress or the Executive; in some sense, therefore, they are ‘above’ both. Those who think otherwise might be likened to the sheep above, except they think the only one involved in directing traffic is the dog, regarding the man as observer – if they consider him at all.
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Fabius Maximus replies: The Fed’s structure is broadly similar to that of most government regulatory agencies, and can be changed at the whim of Congress. Please take this nonsense elsewhere. Any more of this will be deleted as off-topical. Last warning.
Thanks for my laugh of the day!
Rubin, Summers, Geithner et al may be clever, but it was Brooksley Born who knew true wisdom. Unfortunately she was overrun by Greenspan, Rubin and Summers as they rushed to get the Commodities Futures Modernization Act passed in Congress during the Christmas break in which our populace (sheep/goyim) were conveniently distracted by pregnant chads while determining the outcome of the stolen Bush election. This current administration is not change, it is just more of the same. BTW, Geithner was a protege of Summers during that time.
Now we have dark pools of liquid assets anonymously hiding their volume and manipulations and all the while hiding their deep pools of illiquid assets.
Obama is either extremely naive by trusting in poor counsel or something very much worse. Perhaps he should contact Ms. Born or her staff/supporters at the exchange from that time period to get a second opinion of his economic team from some individuals who possess true wisdom.
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FM note: From Bill Moyers Journal, PBS, 3 April 2009 — Interview with William K. Black (now law professor, was He was litigation director for the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and the General Counsel of the Federal Home Loan Bank of San Francisco). Excerpt:
According to news, there’s still $328 billion dollars left in the fund that hasn’t been spent from the $700 billion bank bailout plan. That amount will surely be heading for a debate at the congress on how the remaining money be spent in the near future.
“$328 billion left in bank bailout fund“, AP, 9 July 2009
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Fabius Maximus replies: The party’s not done so as there is a drink left in the bottle.