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.