Bailout FAIL. Working Americans PWNED.

It seems as though Congress and the Bush administration are nearing approval of the $700 billion Wall Street bailout package. It was clear from the get go that low- and middle-income people were not going to be the winners here, no matter the specifics of the package; some details that are coming out now about the current state of the deal are only confirming that prediction. From the Washington Post:

Democrats also made a number of concessions, abandoning demands that bankruptcy judges be empowered to modify home mortgages on primary residences for people in foreclosure. They also agreed not to dedicate a portion of any profits from the bailout program to an affordable housing fund that Republicans claimed would primarily assist social service organizations that support the Democratic Party, the official said.

The New York Times does report that the package “requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures,” but reaffirms that “some Democrats had sought to direct 20 percent of any such profits [from the governmental purchase of assets at prices lower than they may one day be worth] to help create affordable housing, but Republicans opposed that and demanded that all profits be returned to the Treasury.”

I don’t claim to be any expert on economics, but it seems to me that the benefit to normal working Americans (i.e. “Main Street”) will be quite limited. The whole rigmarole about taxpayers (hopefully) being repayed for the bailout through the government receiving equity stakes in rescued companies is cold comfort given that we can’t trust or expect the government to spend that recovered money on things that actually help improve the lives of low- and middle-income Americans, like education, health care, affordable housing, or welfare.

Well, I should be clear – corporate welfare is a-ok, as this entire bailout package demonstrates. But welfare for individuals and families who are just trying to survive? Nah, that kind of welfare doesn’t fly, nor does the affordable housing that might help rescue them from this collapsing housing market. So Wall Street screws working-class Americans with the sub-prime mortgage fiasco, which then backfires and contributes to Wall Street getting screwed, and then Wall Street are the only ones who can really count on being bailed out? Sounds like a big ol’ FAIL to me.

Cross-posted at AngryBrownButch


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12 Responses to Bailout FAIL. Working Americans PWNED.

  1. laura says:

    Fuck you Democrats! Why don’t you grow a pair–so much for caring about the people. Shit, man, this makes me want to vote Green. I don’t really consider myself all that liberal, but this stuff makes me realize how far to the left I am–is social justice and a little accountability on the part of our financial leaders really asking that much?

  2. Manju says:

    Well, here’s a possible best case sceanrio:

    Warren Buffet is right (he said he’d purchase these securities if he had the $$, ie 700bill) and the securities are undervalued.

    One key to understanding this crises, is–unlike the Internet scandals or enron and wcom–insitutions did not try to pass these securities off to unsuspecting individual investors. Nor did CEOs sell their shares in their companies knowing they were about to become worthless. James Cayne of Bear Sterns, for example, went down with the ship. Say what you will about him, but he’s not Ken Lay.

    What does this mean? This tells me the most sophisticated investors actually believed in these securities, but some black swan event coupled with brutal accounting rules (mark to market) made the market irrational by valuing them close to zero. They simply didn’t have time to hold onto these securities until they recovered.

    There’s precedent for this: the Fed orchestrated bailout of Long Term Capital Management after Russia defaulted on her (his) debt. Those derivatives were also valued close to zero, but it turned out the financial models of the Hedge Fund were right, just the fund, because it was leveraged, couldn’t hold onto the securities until the models came to fruition.

    So we get to pick them up for 700bill, 65cents on the dollar, and they return to par as soon as housing prices recover. The next president then has a huge profit with which he can shore up social security, a pyramid scheme representing the next great financial crises.

    Ironically, this may save American socialism and benefit the taxpayers who are being asked to subsidize everyone else.

  3. Kristen says:

    Okay, here’s the long and short of it.

    If Wall Street doesn’t get this bail out then a lot of financial intermediaries and banks are going to go bankrupt.

    Banks and financial intermediaries going bankrupt means that there is no credit. People and corporations cannot take out loans.

    If corporations can’t take out loans, working americans get laid off.

    People with money to buy a house can’t get a mortgage so real estate prices tank even more, causing more foreclosures.

    I know this seems really pie in the sky sometimes…but the bail out will help Main Street a great deal. It’s not my preferred method, but lets not pretend that they aren’t trying to do the right thin.

  4. Radfem says:

    So the Democrats capitulate? Big shock. And is it really about doing the right thing, or did this come about because of bad decisions from both sides of the aisle, decisions made to help out the wealthier minorities of both political parties?

    Crises happen often because they are allowed to or they’re ignored because it’s not their friends that are being hurt. This crisis hurt poorer people before it even became “the crisis”.

    Hey, laura speaking of voting green, This posting appeared on Amp’s blog about Cynthia McKinney and her ideas of what to do about the financial crisis. Whether you agree with it or not or all of it or some of it or not, it will of course never be discussed b/c nothing outside the main parties exists.

  5. Radfem says:

    Actually, crisis is only a partially correct term. A “crisis” implies that it came suddenly out of the blue. No, this is more like a tall house of cards that’s coming down and as we all know, it takes quite a bit of time and energy to build that house of cards.

  6. K says:

    No Bailout! Cut the federal budget in half.

  7. Mike says:

    …lets not pretend that they aren’t trying to do the right thing.

    Kristin: The fact that what they are doing will have positive effects on working people is not sufficient to conclude that “they” are trying to do “the right thing.” The motivation of some individual legislators and Executive Branch members may in fact be to help everyday Americans, but there’s a great many reasons to conclude that “they” – i.e., Congress and the Bush Administration – are trying primarily to help, support and enrich “their” wealthy pals, including the ones who caused the problems.

  8. AlexanderBuinov says:

    Fine.

    Let’s assume the bailout falls apart by the time the Senate votes on Wednesday.
    Then Congress goes away until after the elections. Will one of the no-bailout proponents care to describe what life is going to be like for the next six months?
    Try to be more creative than, “there really won’t be much difference”!

  9. jed says:

    The next president then has a huge profit with which he can shore up social security…

    I find Manju’s comment to be fairly fairly accurate except possibly this. The earliest that those profits are likely to be realized is 2014.

    The questions now are what existing federal programs will be slashed to finance this buyout, will taxes be raised, and which new programs will have to wait. One other question I have: Is the US financially able to continue its occupation of Iraq?

  10. Kristen says:

    Mike,

    I think you and I have a fundamental disagreement about the goodness of people. :)

    How about I rephrase as “lets on pretend that this isn’t necessary for working people.”

  11. Kristen says:

    Typing before coffee = bad.

    “let’s not pretend”

    Oy.

  12. Jack says:

    @laura – I share your indignation, though must admit that despite my belief in the importance of third party politics and despite my ever-renewed frustration with Obama and the Dems, I’ve decided that he’s going to get my vote. (A post on that is brewing in my head…)

    @Manju –

    What does this mean? This tells me the most sophisticated investors actually believed in these securities, but some black swan event coupled with brutal accounting rules (mark to market) made the market irrational by valuing them close to zero. They simply didn’t have time to hold onto these securities until they recovered.

    You give Wall Street a helluva lot more credit than I do.

    So we get to pick them up for 700bill, 65cents on the dollar, and they return to par as soon as housing prices recover. The next president then has a huge profit with which he can shore up social security, a pyramid scheme representing the next great financial crises.

    But when do “we” see that profit, which is not even guaranteed? 2014 as jed suggests is the earliest likely date? Even later? And when “we” do eventually see it, will it go to social programs like social security, or will it wind up being funneled primarily back into the pockets of the rich? I wouldn’t hold my breath on the former. (btw, I put “we” in scare quotes because I sure as hell know that the larger part of my tax dollars go to things that either hurt me or hurt other people and that I certainly never approved, and I’m sure that goes for many taxpayers, if not most.)

    @Kristen – Again, I’m no econ expert, but what you’re talking about sounds an awful lot like trickle-down economics to me. And we all know how well that turns out for the people at the bottom of the money pile.

    @AlexanderBuinov – I don’t know if I’m completely against any bailout of any size whatsoever. However, I do know that I want this plan to fail, if only so that Congress and the American people get to really examine what the hell this bill is all about in its nuts and bolts and consider what alterations or alternatives can and should be pursued, lest we wind up with a second Patriot Act on the books.

    @jed – “One other question I have: Is the US financially able to continue its occupation of Iraq?” I ask that question, too. Though since the $700 billion is apparently magical money that Paulson has been hiding up his magical arsehole for a rainy day, we shouldn’t worry ourselves with silly little questions about how the US is going to afford all the other shit it’s trying to do (for better or for worse.)

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