The Deal

With the biggest gun at their heads imaginable — an economic meltdown just five weeks before many of them are up for reelection — members of Congress have just about agreed to the terms of the mother of all bailouts. They’ve also agreed to press two conditions — limits on executive salaries, and some sort of public ownership proportional to the risks taxpayers are taking on.

But the devil is in the details. From what I’ve heard, the kinds of limits being discussed could easily be cosmetic, such as limits on golden parachutes or limits on net increases in direct salaries during the duration of the bailout. Public equity could also vaporize into conditional warrants, giving taxpayers (and the Treasury) the option to cash in on certain classes of stock or applying only where firms get direct government aid rather than where they fob off their bad debts on the public.

There will be some skirmishing over whether homeowners in danger of losing their homes should be given some breaks, but here too it’s important to watch the details. Wall Street doesn’t want any provision that allows distressed homeowners to wiggle out of their mortgage obligations, even though Wall Street is wiggling out of its own bad debts.

Congress knows the public is furious. That’s why it’s insisting on the above-mentioned provisions. But Congress and the Administration, and Wall Street, also know that the public — and the media — can easily be hoodwinked into believing that certain limits and protections have been built into the deal when, on closer inspection, they haven’t. Wall Street is masterful at creating the appearances of value when there’s no value there, and many of our representatives in Congress are well-versed in the art of creating the appearances of public gains when the gains are mostly private. So the media has to dig hard and look at the details of this deal.

Meanwhile, when no one was looking, American automakers are on the way to getting their own sweetheart deal from Congress — billions, ostensibly to convert to more fuel-efficient cars. On a much smaller scale, this bailout is almost as outrageuos as Wall Street’s. Detroit has known for years that it would eventually have to create fuel-efficient cars, but it kept producing SUVs and trucks because that was where the profits were. Japanese automakers in the US did the right thing, took the risk, made the investments in fuel-efficient technologies. But they’re not getting bailed out.

In just a few weeks, capitalism has been turned upside down. The underlying question here, as with trickle-down tax policy, is whether any of this ultimately helps Main Street.

Originally published on September 25, 2008 and reproduced here with the author’s permission.

4 Responses to "The Deal"

  1. Guest   September 27, 2008 at 1:12 pm

    Th U.S. will have to sell alot of bonds to cover all these gifts unless we are looking forward to a new currency called The Amero. It is true that the american people can be bamboozeled but to what extent?For what ultimate purpose? To turn the country into A Clockwork Orange anarchy. Or better yet a sort of communist Russia police state of the 1970’s. The society is extremely angry. The Illuminati should not laugh too loud.

  2. Euro   September 27, 2008 at 1:54 pm

    I’m sure that layoffs and outsourcing will continue regardless of the this 700 billion ripoff. I’m tiredof talking to India. I’m tired of looking over my shoulder. I’m preparing to leave the U.S. as soon as possible.Like it or leave it? Yes I don’t like it here and I’m leaving. It is no longer the country I can feel good about.

  3. artichoke   September 27, 2008 at 2:43 pm

    Have some sympathy for Detroit. I’m amazed they have been able to compete with Japan as long as they have, weighed down with health-care and pension obligations the Japanese do not have.Have no sympathy for Wall Street. If the deal is anything like what you describe, it’s simple. If your Congressman votes for it, vote for their opponent in the election. If they vote against it, please vote to return them to office; they HAVE done their job despite enormous pressure to cave.

  4. AWest   September 27, 2008 at 3:19 pm

    Mr. Reich:It would be very helpful for America (and I think powerful for the individual advocates carrer and reputation) if a true advocate for the American people would take this opportunity to QUICKLY step forwared and deliver a truly transparent (and likely very popular) expose’ on the tangible abuses of Wall St. Tangible for the common man is the key. The discussion taking place in the media is too confusing for most. We need someone to Champion a recovery of as much of the ill gotten booty, plundered from the system (our pockets) by modern pirates. It should be criminal and it should reach all the way back into the pockets of virtually the entire machine. I would favor a retroactive Tax on Financial Service Bonus and Pay packages.As I have commented on other pages in the Econo Monitor, I have a friend who managed a large State Pension Fund for several years. He recently described to me a conversation he had with Investment Bankers in 1994. Following a lengthy discussion about the opportunities in hyrbid investment mechanisms (derivative etc.,) my very clear thinking friend asked, “what happens to the last guy holding this paper when the market corrects”. There was a silence……followed by laughter from the IBankers who then said….”what do you care, you will have gotten your money by then”.The people who so arrogantly abused America should be made to fear the consequences of their actions like so many citizens. This would be perceived, I’m sure, as an innocent, perhaps naive example. I am certain that there are many, many, many more significant instances out there. It may be simple, but everyone I describe it to, has the same reaction, jaw dropping anger. This is what we need right now, ANGER from the populace, and fear among the criminals.The theft cannot be allowed to stand. No political grandstanding will fix the problem. No new regulatory regime’ will truly cleanse the system. Only aggressive legal and financial pursuit will truly clean the rot. Sir, you have enough credibility. It would be contrary enough to your image in the media that such narrative would be powerful indeed, we need this kind of leadership.